Correlation Between SPDR SP and VanEck Natural

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

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

Diversification Opportunities for SPDR SP and VanEck Natural

0.85

Correlation Coefficient

SPDR SP  VanEck Natural

Very poor diversification

The 3 months correlation between SPDR and VanEck is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Metals and VanEck Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Natural Resources 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 Metals are associated (or correlated) with VanEck Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Natural Resources has no effect on the direction of SPDR SP i.e., SPDR SP and VanEck Natural go up and down completely randomly.

Pair Corralation between SPDR SP and VanEck Natural

Considering the 90-day investment horizon SPDR SP Metals is expected to generate 1.86 times more return on investment than VanEck Natural. However, SPDR SP is 1.86 times more volatile than VanEck Natural Resources. It trades about 0.01 of its potential returns per unit of risk. VanEck Natural Resources is currently generating about 0.02 per unit of risk. If you would invest  5,586  in SPDR SP Metals on October 14, 2024 and sell it today you would earn a total of  127.00  from holding SPDR SP Metals or generate 2.27% return on investment over 90 days.

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

SPDR SP Metals  vs.  VanEck Natural Resources

SPDR SP Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

VanEck Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with SPDR SP and VanEck Natural

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

The idea behind SPDR SP Metals and VanEck Natural Resources 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.