Correlation Between Vanguard STAR and SPDR Series

Can any of the company-specific risk be diversified away by investing in both Vanguard STAR and SPDR Series 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 STAR and SPDR Series into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard STAR Funds and SPDR Series Trust, you can compare the effects of market volatilities on Vanguard STAR and SPDR Series 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 STAR with a short position of SPDR Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard STAR and SPDR Series.

Diversification Opportunities for Vanguard STAR and SPDR Series

0.57

Correlation Coefficient

Vanguard STAR  SPDR Series

Very weak diversification

The 3 months correlation between Vanguard and SPDR is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard STAR Funds and SPDR Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Series Trust and Vanguard STAR 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 STAR Funds are associated (or correlated) with SPDR Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Series Trust has no effect on the direction of Vanguard STAR i.e., Vanguard STAR and SPDR Series go up and down completely randomly.

Pair Corralation between Vanguard STAR and SPDR Series

Assuming the 90 days trading horizon Vanguard STAR is expected to generate 15.66 times less return on investment than SPDR Series. But when comparing it to its historical volatility, Vanguard STAR Funds is 1.54 times less risky than SPDR Series. It trades about 0.02 of its potential returns per unit of risk. SPDR Series Trust is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  404,629  in SPDR Series Trust on September 26, 2024 and sell it today you would earn a total of  116,996  from holding SPDR Series Trust or generate 28.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Vanguard STAR Funds  vs.  SPDR Series Trust

Vanguard STAR Funds

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard STAR Funds are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Vanguard STAR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SPDR Series Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Series Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, SPDR Series showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard STAR and SPDR Series

The main advantage of trading using opposite Vanguard STAR and SPDR Series positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard STAR position performs unexpectedly, SPDR Series 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 Series will offset losses from the drop in SPDR Series' long position.

The idea behind Vanguard STAR Funds and SPDR Series Trust 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.