Correlation Between SPDR SP and SPDR SP

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

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

Diversification Opportunities for SPDR SP and SPDR SP

0.69

Correlation Coefficient

SPDR SP  SPDR SP

Poor diversification

The 3 months correlation between SPDR and SPDR is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Technology and SPDR SP Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Materials 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 Technology are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Materials has no effect on the direction of SPDR SP i.e., SPDR SP and SPDR SP go up and down completely randomly.

Pair Corralation between SPDR SP and SPDR SP

Assuming the 90 days trading horizon SPDR SP Technology is expected to under-perform the SPDR SP. In addition to that, SPDR SP is 2.02 times more volatile than SPDR SP Materials. It trades about -0.15 of its total potential returns per unit of risk. SPDR SP Materials is currently generating about -0.06 per unit of volatility. If you would invest  3,988  in SPDR SP Materials on December 22, 2024 and sell it today you would lose (128.00) from holding SPDR SP Materials or give up 3.21% of portfolio value over 90 days.

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

SPDR SP Technology  vs.  SPDR SP Materials

SPDR SP Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

SPDR SP Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPDR SP and SPDR SP

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

The idea behind SPDR SP Technology and SPDR SP Materials 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.