Correlation Between Principal Active and SPDR SSgA

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

By analyzing existing cross correlation between Principal Active High and SPDR SSgA Income, you can compare the effects of market volatilities on Principal Active and SPDR SSgA 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 Principal Active with a short position of SPDR SSgA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Active and SPDR SSgA.

Diversification Opportunities for Principal Active and SPDR SSgA

0.8

Correlation Coefficient

Principal Active  SPDR SSgA

Very poor diversification

The 3 months correlation between Principal and SPDR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Principal Active High and SPDR SSgA Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSgA Income and Principal Active 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 Principal Active High are associated (or correlated) with SPDR SSgA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSgA Income has no effect on the direction of Principal Active i.e., Principal Active and SPDR SSgA go up and down completely randomly.

Pair Corralation between Principal Active and SPDR SSgA

Considering the 90-day investment horizon Principal Active is expected to generate 2.6 times less return on investment than SPDR SSgA. But when comparing it to its historical volatility, Principal Active High is 1.53 times less risky than SPDR SSgA. It trades about 0.06 of its potential returns per unit of risk. SPDR SSgA Income is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,105  in SPDR SSgA Income on December 29, 2024 and sell it today you would earn a total of  69.00  from holding SPDR SSgA Income or generate 2.22% return on investment over 90 days.

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

Principal Active High  vs.  SPDR SSgA Income

Principal Active High

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Active High are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Principal Active is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR SSgA Income

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSgA Income are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward-looking signals, SPDR SSgA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Principal Active and SPDR SSgA

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

The idea behind Principal Active High and SPDR SSgA Income 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.

Check out your portfolio center.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.