Correlation Between SPDR SP and Overlay Shares
Can any of the company-specific risk be diversified away by investing in both SPDR SP and Overlay Shares 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 SP and Overlay Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP World and Overlay Shares Foreign, you can compare the effects of market volatilities on SPDR SP and Overlay Shares 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 SP with a short position of Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Overlay Shares.
Diversification Opportunities for SPDR SP and Overlay Shares
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SPDR and Overlay is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP World and Overlay Shares Foreign in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Foreign and SPDR SP 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 SP World are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Foreign has no effect on the direction of SPDR SP i.e., SPDR SP and Overlay Shares go up and down completely randomly.
Pair Corralation between SPDR SP and Overlay Shares
Given the investment horizon of 90 days SPDR SP is expected to generate 2.34 times less return on investment than Overlay Shares. But when comparing it to its historical volatility, SPDR SP World is 1.1 times less risky than Overlay Shares. It trades about 0.01 of its potential returns per unit of risk. Overlay Shares Foreign is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 2,429 in Overlay Shares Foreign on August 28, 2024 and sell it today you would earn a total of 28.00 from holding Overlay Shares Foreign or generate 1.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP World vs. Overlay Shares Foreign
Performance |
| Timeline |
| SPDR SP World |
| Overlay Shares Foreign |
SPDR SP and Overlay Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Overlay Shares
The main advantage of trading using opposite SPDR SP and Overlay Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Overlay Shares 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 Overlay Shares will offset losses from the drop in Overlay Shares' long position.| SPDR SP vs. Dimensional Core Equity | SPDR SP vs. Dimensional Emerging Core | SPDR SP vs. Dimensional Targeted Value | SPDR SP vs. Dimensional Small Cap |
| Overlay Shares vs. Overlay Shares Core | Overlay Shares vs. Overlay Shares Large | Overlay Shares vs. OVS SpA | Overlay Shares vs. Overlay Shares Municipal |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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