Correlation Between SPDR SSGA and BlackRock Equity

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

By analyzing existing cross correlation between SPDR SSGA Sector and BlackRock Equity Factor, you can compare the effects of market volatilities on SPDR SSGA and BlackRock Equity 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 SSGA with a short position of BlackRock Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SSGA and BlackRock Equity.

Diversification Opportunities for SPDR SSGA and BlackRock Equity

1.0

Correlation Coefficient

SPDR SSGA  BlackRock Equity

No risk reduction

The 3 months correlation between SPDR and BlackRock is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SSGA Sector and BlackRock Equity Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlackRock Equity Factor and SPDR SSGA 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 SSGA Sector are associated (or correlated) with BlackRock Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlackRock Equity Factor has no effect on the direction of SPDR SSGA i.e., SPDR SSGA and BlackRock Equity go up and down completely randomly.

Pair Corralation between SPDR SSGA and BlackRock Equity

Given the investment horizon of 90 days SPDR SSGA Sector is expected to under-perform the BlackRock Equity. In addition to that, SPDR SSGA is 1.04 times more volatile than BlackRock Equity Factor. It trades about -0.08 of its total potential returns per unit of risk. BlackRock Equity Factor is currently generating about -0.08 per unit of volatility. If you would invest  5,131  in BlackRock Equity Factor on December 29, 2024 and sell it today you would lose (282.00) from holding BlackRock Equity Factor or give up 5.5% of portfolio value over 90 days.

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

SPDR SSGA Sector  vs.  BlackRock Equity Factor

SPDR SSGA Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SSGA Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, SPDR SSGA is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

BlackRock Equity Factor

Risk-Adjusted Performance

Very Weak

Over the last 90 days BlackRock Equity Factor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BlackRock Equity is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPDR SSGA and BlackRock Equity

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

The idea behind SPDR SSGA Sector and BlackRock Equity Factor 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.