Correlation Between SPDR Dow and Vanguard
Can any of the company-specific risk be diversified away by investing in both SPDR Dow and Vanguard 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 Dow and Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR Dow Jones and Vanguard SP 500, you can compare the effects of market volatilities on SPDR Dow and Vanguard 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 Dow with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Dow and Vanguard.
Diversification Opportunities for SPDR Dow and Vanguard
Very poor diversification
The 3 months correlation between SPDR and Vanguard is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and SPDR Dow 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 Dow Jones are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of SPDR Dow i.e., SPDR Dow and Vanguard go up and down completely randomly.
Pair Corralation between SPDR Dow and Vanguard
Assuming the 90 days trading horizon SPDR Dow Jones is expected to generate 0.93 times more return on investment than Vanguard. However, SPDR Dow Jones is 1.07 times less risky than Vanguard. It trades about 0.19 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.17 per unit of risk. If you would invest 37,064 in SPDR Dow Jones on November 2, 2024 and sell it today you would earn a total of 5,901 from holding SPDR Dow Jones or generate 15.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.06% |
| Values | Daily Returns |
SPDR Dow Jones vs. Vanguard SP 500
Performance |
| Timeline |
| SPDR Dow Jones |
| Vanguard SP 500 |
SPDR Dow and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR Dow and Vanguard
The main advantage of trading using opposite SPDR Dow and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Dow position performs unexpectedly, Vanguard 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 Vanguard will offset losses from the drop in Vanguard's long position.| SPDR Dow vs. Vanguard SP 500 | SPDR Dow vs. iShares Core MSCI | SPDR Dow vs. iShares SP 500 | SPDR Dow vs. Vanguard FTSE All World |
| Vanguard vs. Vanguard FTSE All World | Vanguard vs. iShares Core MSCI | Vanguard vs. Vanguard FTSE All World | Vanguard vs. Vanguard FTSE Emerging |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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