Correlation Between SPDR Series and SPDR Index

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

By analyzing existing cross correlation between SPDR Series Trust and SPDR Index Shares, you can compare the effects of market volatilities on SPDR Series and SPDR Index 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 Series with a short position of SPDR Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Series and SPDR Index.

Diversification Opportunities for SPDR Series and SPDR Index

-0.52

Correlation Coefficient

SPDR Series  SPDR Index

Excellent diversification

The 3 months correlation between SPDR and SPDR is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Series Trust and SPDR Index Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Index Shares and SPDR Series 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 Series Trust are associated (or correlated) with SPDR Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Index Shares has no effect on the direction of SPDR Series i.e., SPDR Series and SPDR Index go up and down completely randomly.

Pair Corralation between SPDR Series and SPDR Index

Assuming the 90 days trading horizon SPDR Series is expected to generate 3.2 times less return on investment than SPDR Index. In addition to that, SPDR Series is 1.45 times more volatile than SPDR Index Shares. It trades about 0.03 of its total potential returns per unit of risk. SPDR Index Shares is currently generating about 0.15 per unit of volatility. If you would invest  99,900  in SPDR Index Shares on December 29, 2024 and sell it today you would earn a total of  12,405  from holding SPDR Index Shares or generate 12.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

SPDR Series Trust  vs.  SPDR Index Shares

SPDR Series Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Series Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR Series is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SPDR Index Shares

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Index Shares are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR Index showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR Series and SPDR Index

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

The idea behind SPDR Series Trust and SPDR Index Shares 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.