Correlation Between SPDR SP and SPDR Morgan

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

By analyzing existing cross correlation between SPDR SP Health and SPDR Morgan Stanley, you can compare the effects of market volatilities on SPDR SP and SPDR Morgan 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 SPDR Morgan. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and SPDR Morgan.

Diversification Opportunities for SPDR SP and SPDR Morgan

0.64

Correlation Coefficient

SPDR SP  SPDR Morgan

Poor diversification

The 3 months correlation between SPDR and SPDR is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Health and SPDR Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Morgan Stanley 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 Health are associated (or correlated) with SPDR Morgan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Morgan Stanley has no effect on the direction of SPDR SP i.e., SPDR SP and SPDR Morgan go up and down completely randomly.

Pair Corralation between SPDR SP and SPDR Morgan

Considering the 90-day investment horizon SPDR SP is expected to generate 26.58 times less return on investment than SPDR Morgan. But when comparing it to its historical volatility, SPDR SP Health is 1.08 times less risky than SPDR Morgan. It trades about 0.0 of its potential returns per unit of risk. SPDR Morgan Stanley is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  10,148  in SPDR Morgan Stanley on September 28, 2024 and sell it today you would earn a total of  10,859  from holding SPDR Morgan Stanley or generate 107.01% return on investment over 90 days.

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

SPDR SP Health  vs.  SPDR Morgan Stanley

SPDR SP Health

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days SPDR SP Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, SPDR SP is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR Morgan Stanley

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Morgan Stanley are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, SPDR Morgan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and SPDR Morgan

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

The idea behind SPDR SP Health and SPDR Morgan Stanley 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.