Correlation Between SPDR SP and Vanguard Energy

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

Diversification Opportunities for SPDR SP and Vanguard Energy

0.78

Correlation Coefficient

SPDR SP  Vanguard Energy

Poor diversification

The 3 months correlation between SPDR and Vanguard is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Metals and Vanguard Energy Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy Index 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 Vanguard Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy Index has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard Energy go up and down completely randomly.

Pair Corralation between SPDR SP and Vanguard Energy

Considering the 90-day investment horizon SPDR SP Metals is expected to generate 1.34 times more return on investment than Vanguard Energy. However, SPDR SP is 1.34 times more volatile than Vanguard Energy Index. It trades about -0.17 of its potential returns per unit of risk. Vanguard Energy Index is currently generating about -0.25 per unit of risk. If you would invest  6,510  in SPDR SP Metals on September 15, 2024 and sell it today you would lose (307.00) from holding SPDR SP Metals or give up 4.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

SPDR SP Metals  vs.  Vanguard Energy Index

SPDR SP Metals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Metals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent primary indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Energy Index

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Index are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Vanguard Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SPDR SP and Vanguard Energy

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

The idea behind SPDR SP Metals and Vanguard Energy Index 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.