Correlation Between SPDR SP and SPDR Index
Can any of the company-specific risk be diversified away by investing in both SPDR SP and SPDR Index 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 SPDR Index into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 500 and SPDR Index Shares, you can compare the effects of market volatilities on SPDR SP and SPDR Index 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 SPDR Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and SPDR Index.
Diversification Opportunities for SPDR SP and SPDR Index
-0.24 | Correlation Coefficient |
Very good diversification
The 3 months correlation between SPDR and SPDR is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and SPDR Index Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Index Shares 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 500 are associated (or correlated) with SPDR Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Index Shares has no effect on the direction of SPDR SP i.e., SPDR SP and SPDR Index go up and down completely randomly.
Pair Corralation between SPDR SP and SPDR Index
Assuming the 90 days trading horizon SPDR SP is expected to generate 1.29 times less return on investment than SPDR Index. But when comparing it to its historical volatility, SPDR SP 500 is 3.11 times less risky than SPDR Index. It trades about 0.11 of its potential returns per unit of risk. SPDR Index Shares is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 69,540 in SPDR Index Shares on August 30, 2024 and sell it today you would earn a total of 28,648 from holding SPDR Index Shares or generate 41.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 75.76% |
| Values | Daily Returns |
SPDR SP 500 vs. SPDR Index Shares
Performance |
| Timeline |
| SPDR SP 500 |
| SPDR Index Shares |
SPDR SP and SPDR Index Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and SPDR Index
The main advantage of trading using opposite SPDR SP and SPDR Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, SPDR Index 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 Index will offset losses from the drop in SPDR Index's long position.| SPDR SP vs. SPDR Dow Jones | SPDR SP vs. SPDR Gold Trust | SPDR SP vs. SPDR Series Trust | SPDR SP vs. SPDR SP Regional |
| SPDR Index vs. SPDR SP 500 | SPDR Index vs. Vanguard Bond Index | SPDR Index vs. Invesco QQQ Trust | SPDR Index vs. Vanguard Tax Managed Funds |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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