Correlation Between SPDR Series and Vanguard Index

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

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

Diversification Opportunities for SPDR Series and Vanguard Index

0.62

Correlation Coefficient

SPDR Series  Vanguard Index

Poor diversification

The 3 months correlation between SPDR and Vanguard is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Series Trust and Vanguard Index Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Index Funds and SPDR Series 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 Series Trust are associated (or correlated) with Vanguard Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Index Funds has no effect on the direction of SPDR Series i.e., SPDR Series and Vanguard Index go up and down completely randomly.

Pair Corralation between SPDR Series and Vanguard Index

Assuming the 90 days trading horizon SPDR Series Trust is expected to generate 1.75 times more return on investment than Vanguard Index. However, SPDR Series is 1.75 times more volatile than Vanguard Index Funds. It trades about -0.04 of its potential returns per unit of risk. Vanguard Index Funds is currently generating about -0.08 per unit of risk. If you would invest  185,168  in SPDR Series Trust on December 22, 2024 and sell it today you would lose (9,091) from holding SPDR Series Trust or give up 4.91% of portfolio value over 90 days.

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

SPDR Series Trust  vs.  Vanguard Index Funds

SPDR Series Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Series Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, SPDR Series is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Index Funds

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Index Funds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, Vanguard Index is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR Series and Vanguard Index

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

The idea behind SPDR Series Trust and Vanguard Index Funds 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.