Correlation Between SPDR SSGA and Vanguard

Can any of the company-specific risk be diversified away by investing in both SPDR SSGA and Vanguard 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 Vanguard 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 Vanguard SP 500, you can compare the effects of market volatilities on SPDR SSGA and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SSGA and Vanguard.

Diversification Opportunities for SPDR SSGA and Vanguard

0.99

Correlation Coefficient

SPDR SSGA  Vanguard

No risk reduction

The 3 months correlation between SPDR and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SSGA Sector and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of SPDR SSGA i.e., SPDR SSGA and Vanguard go up and down completely randomly.

Pair Corralation between SPDR SSGA and Vanguard

Given the investment horizon of 90 days SPDR SSGA is expected to generate 1.24 times less return on investment than Vanguard. In addition to that, SPDR SSGA is 1.07 times more volatile than Vanguard SP 500. It trades about 0.08 of its total potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.11 per unit of volatility. If you would invest  34,751  in Vanguard SP 500 on December 4, 2024 and sell it today you would earn a total of  18,294  from holding Vanguard SP 500 or generate 52.64% return on investment over 90 days.

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

SPDR SSGA Sector  vs.  Vanguard SP 500

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.

Vanguard SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR SSGA and Vanguard

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

The idea behind SPDR SSGA Sector and Vanguard SP 500 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.