Correlation Between SPDR SP and VanEck Biotech

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

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

Diversification Opportunities for SPDR SP and VanEck Biotech

0.12

Correlation Coefficient

SPDR SP  VanEck Biotech

Average diversification

The 3 months correlation between SPDR and VanEck is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Biotech and VanEck Biotech ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Biotech ETF and SPDR SP 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 SP Biotech are associated (or correlated) with VanEck Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Biotech ETF has no effect on the direction of SPDR SP i.e., SPDR SP and VanEck Biotech go up and down completely randomly.

Pair Corralation between SPDR SP and VanEck Biotech

Considering the 90-day investment horizon SPDR SP Biotech is expected to under-perform the VanEck Biotech. In addition to that, SPDR SP is 1.36 times more volatile than VanEck Biotech ETF. It trades about -0.06 of its total potential returns per unit of risk. VanEck Biotech ETF is currently generating about 0.04 per unit of volatility. If you would invest  15,632  in VanEck Biotech ETF on December 28, 2024 and sell it today you would earn a total of  345.00  from holding VanEck Biotech ETF or generate 2.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

SPDR SP Biotech  vs.  VanEck Biotech ETF

SPDR SP Biotech

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, SPDR SP is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

VanEck Biotech ETF

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Biotech ETF are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, VanEck Biotech is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SPDR SP and VanEck Biotech

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

The idea behind SPDR SP Biotech and VanEck Biotech ETF 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.