Correlation Between SPDR Dow and SPDR SP
Can any of the company-specific risk be diversified away by investing in both SPDR Dow 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 Dow 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 Dow Jones and SPDR SP Utilities, you can compare the effects of market volatilities on SPDR Dow 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 Dow with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Dow and SPDR SP.
Diversification Opportunities for SPDR Dow and SPDR SP
Poor diversification
The 3 months correlation between SPDR and SPDR is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and SPDR SP Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Utilities 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 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 Utilities has no effect on the direction of SPDR Dow i.e., SPDR Dow and SPDR SP go up and down completely randomly.
Pair Corralation between SPDR Dow and SPDR SP
Assuming the 90 days trading horizon SPDR Dow Jones is expected to generate 0.91 times more return on investment than SPDR SP. However, SPDR Dow Jones is 1.1 times less risky than SPDR SP. It trades about -0.11 of its potential returns per unit of risk. SPDR SP Utilities is currently generating about -0.14 per unit of risk. If you would invest 3,046 in SPDR Dow Jones on October 9, 2024 and sell it today you would lose (63.00) from holding SPDR Dow Jones or give up 2.07% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 93.75% |
| Values | Daily Returns |
SPDR Dow Jones vs. SPDR SP Utilities
Performance |
| Timeline |
| SPDR Dow Jones |
| SPDR SP Utilities |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
SPDR Dow and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR Dow and SPDR SP
The main advantage of trading using opposite SPDR Dow and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Dow 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 Dow Jones and SPDR SP Utilities 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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