Correlation Between Vanguard FTSE and SPDR SP

Can any of the company-specific risk be diversified away by investing in both Vanguard FTSE and SPDR SP at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Vanguard FTSE and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard FTSE Developed and SPDR SP Materials, you can compare the effects of market volatilities on Vanguard FTSE and SPDR SP and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Vanguard FTSE with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and SPDR SP.

Diversification Opportunities for Vanguard FTSE and SPDR SP

0.66

Correlation Coefficient

Vanguard FTSE  SPDR SP

Poor diversification

The 3 months correlation between Vanguard and SPDR is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and SPDR SP Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Materials and Vanguard FTSE is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Vanguard FTSE Developed are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Materials has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and SPDR SP go up and down completely randomly.

Pair Corralation between Vanguard FTSE and SPDR SP

Assuming the 90 days trading horizon Vanguard FTSE Developed is expected to generate 0.77 times more return on investment than SPDR SP. However, Vanguard FTSE Developed is 1.29 times less risky than SPDR SP. It trades about 0.01 of its potential returns per unit of risk. SPDR SP Materials is currently generating about -0.28 per unit of risk. If you would invest  4,650  in Vanguard FTSE Developed on September 21, 2024 and sell it today you would earn a total of  5.00  from holding Vanguard FTSE Developed or generate 0.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Vanguard FTSE Developed  vs.  SPDR SP Materials

Vanguard FTSE Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

SPDR SP Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with Vanguard FTSE and SPDR SP

The main advantage of trading using opposite Vanguard FTSE and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard FTSE position performs unexpectedly, SPDR SP can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SPDR SP will offset losses from the drop in SPDR SP's long position.

The idea behind Vanguard FTSE Developed and SPDR SP Materials pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .