Correlation Between VanEck International and SP Funds
Can any of the company-specific risk be diversified away by investing in both VanEck International and SP Funds 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 VanEck International and SP Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VanEck International High and SP Funds Dow, you can compare the effects of market volatilities on VanEck International and SP Funds 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 VanEck International with a short position of SP Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck International and SP Funds.
Diversification Opportunities for VanEck International and SP Funds
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between VanEck and SPSK is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding VanEck International High and SP Funds Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds Dow and VanEck International 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 VanEck International High are associated (or correlated) with SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds Dow has no effect on the direction of VanEck International i.e., VanEck International and SP Funds go up and down completely randomly.
Pair Corralation between VanEck International and SP Funds
Considering the 90-day investment horizon VanEck International High is expected to under-perform the SP Funds. But the etf apears to be less risky and, when comparing its historical volatility, VanEck International High is 1.33 times less risky than SP Funds. The etf trades about -0.26 of its potential returns per unit of risk. The SP Funds Dow is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 1,808 in SP Funds Dow on August 27, 2024 and sell it today you would lose (3.00) from holding SP Funds Dow or give up 0.17% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
VanEck International High vs. SP Funds Dow
Performance |
| Timeline |
| VanEck International High |
| SP Funds Dow |
VanEck International and SP Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with VanEck International and SP Funds
The main advantage of trading using opposite VanEck International and SP Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck International position performs unexpectedly, SP Funds 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 SP Funds will offset losses from the drop in SP Funds' long position.| VanEck International vs. First Trust Senior | VanEck International vs. First Trust Low | VanEck International vs. First Trust Enhanced | VanEck International vs. First Trust TCW |
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against SP Funds as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. SP Funds' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, SP Funds' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to SP Funds Dow.
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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