Correlation Between SPDR Series and United States

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

Diversification Opportunities for SPDR Series and United States

-0.08

Correlation Coefficient

SPDR Series  United States

Good diversification

The 3 months correlation between SPDR and United is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Series Trust and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of SPDR Series i.e., SPDR Series and United States go up and down completely randomly.

Pair Corralation between SPDR Series and United States

Assuming the 90 days trading horizon SPDR Series is expected to generate 8.73 times less return on investment than United States. But when comparing it to its historical volatility, SPDR Series Trust is 1.54 times less risky than United States. It trades about 0.03 of its potential returns per unit of risk. United States Steel is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  63,423  in United States Steel on December 28, 2024 and sell it today you would earn a total of  24,024  from holding United States Steel or generate 37.88% return on investment over 90 days.

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

SPDR Series Trust  vs.  United States Steel

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.

United States Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, United States showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR Series and United States

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

The idea behind SPDR Series Trust and United States Steel 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.