Correlation Between SPDR FTSE and SP Funds

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

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

Diversification Opportunities for SPDR FTSE and SP Funds

0.87

Correlation Coefficient

SPDR FTSE  SP Funds

Very poor diversification

The 3 months correlation between SPDR and SPSK is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding SPDR FTSE International and SP Funds Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds Dow and SPDR 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 SPDR FTSE International are associated (or correlated) with SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds Dow has no effect on the direction of SPDR FTSE i.e., SPDR FTSE and SP Funds go up and down completely randomly.

Pair Corralation between SPDR FTSE and SP Funds

Considering the 90-day investment horizon SPDR FTSE International is expected to generate 1.77 times more return on investment than SP Funds. However, SPDR FTSE is 1.77 times more volatile than SP Funds Dow. It trades about 0.14 of its potential returns per unit of risk. SP Funds Dow is currently generating about 0.12 per unit of risk. If you would invest  3,584  in SPDR FTSE International on December 27, 2024 and sell it today you would earn a total of  179.00  from holding SPDR FTSE International or generate 4.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

SPDR FTSE International  vs.  SP Funds Dow

SPDR FTSE International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR FTSE International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, SPDR FTSE is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

SP Funds Dow

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SP Funds Dow are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, SP Funds is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SPDR FTSE and SP Funds

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

The idea behind SPDR FTSE International and SP Funds Dow 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 Transaction History module to view history of all your transactions and understand their impact on performance.