Correlation Between SPDR ICE and SPDR SP

Can any of the company-specific risk be diversified away by investing in both SPDR ICE 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 ICE 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 ICE BofA and SPDR SP Materials, you can compare the effects of market volatilities on SPDR ICE 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 ICE with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR ICE and SPDR SP.

Diversification Opportunities for SPDR ICE and SPDR SP

-0.41

Correlation Coefficient

SPDR ICE  SPDR SP

Very good diversification

The 3 months correlation between SPDR and SPDR is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding SPDR ICE BofA 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 ICE 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 ICE BofA 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 ICE i.e., SPDR ICE and SPDR SP go up and down completely randomly.

Pair Corralation between SPDR ICE and SPDR SP

Assuming the 90 days trading horizon SPDR ICE BofA is expected to generate 0.18 times more return on investment than SPDR SP. However, SPDR ICE BofA is 5.67 times less risky than SPDR SP. It trades about 0.1 of its potential returns per unit of risk. SPDR SP Materials is currently generating about -0.16 per unit of risk. If you would invest  2,907  in SPDR ICE BofA on September 15, 2024 and sell it today you would earn a total of  9.00  from holding SPDR ICE BofA or generate 0.31% return on investment over 90 days.

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

SPDR ICE BofA  vs.  SPDR SP Materials

SPDR ICE BofA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR ICE BofA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SPDR ICE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR SP Materials

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 ICE and SPDR SP

The main advantage of trading using opposite SPDR ICE and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR ICE 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 ICE BofA 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.