Correlation Between MicroSectors FANG and SPDR Portfolio
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and SPDR Portfolio 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 MicroSectors FANG and SPDR Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectors FANG Index and SPDR Portfolio SP, you can compare the effects of market volatilities on MicroSectors FANG and SPDR Portfolio 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 MicroSectors FANG with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and SPDR Portfolio.
Diversification Opportunities for MicroSectors FANG and SPDR Portfolio
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between MicroSectors and SPDR is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and SPDR Portfolio SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio SP and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio SP has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and SPDR Portfolio go up and down completely randomly.
Pair Corralation between MicroSectors FANG and SPDR Portfolio
Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 3.83 times more return on investment than SPDR Portfolio. However, MicroSectors FANG is 3.83 times more volatile than SPDR Portfolio SP. It trades about 0.15 of its potential returns per unit of risk. SPDR Portfolio SP is currently generating about 0.01 per unit of risk. If you would invest 7,484 in MicroSectors FANG Index on November 1, 2024 and sell it today you would earn a total of 2,221 from holding MicroSectors FANG Index or generate 29.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
MicroSectors FANG Index vs. SPDR Portfolio SP
Performance |
| Timeline |
| MicroSectors FANG Index |
| SPDR Portfolio SP |
MicroSectors FANG and SPDR Portfolio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and SPDR Portfolio
The main advantage of trading using opposite MicroSectors FANG and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, SPDR Portfolio 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 Portfolio will offset losses from the drop in SPDR Portfolio's long position.The idea behind MicroSectors FANG Index and SPDR Portfolio SP 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.| SPDR Portfolio vs. Invesco SP 500 | SPDR Portfolio vs. iShares Core High | SPDR Portfolio vs. SPDR Portfolio SP | SPDR Portfolio vs. Schwab Dividend Equity |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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