Correlation Between SPDR SP and Vanguard World
Can any of the company-specific risk be diversified away by investing in both SPDR SP and Vanguard World 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 Vanguard World 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 Vanguard World, you can compare the effects of market volatilities on SPDR SP and Vanguard World 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 Vanguard World. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Vanguard World.
Diversification Opportunities for SPDR SP and Vanguard World
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SPDR and Vanguard is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Vanguard World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard World 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 Vanguard World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard World has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard World go up and down completely randomly.
Pair Corralation between SPDR SP and Vanguard World
Assuming the 90 days trading horizon SPDR SP 500 is expected to generate 0.81 times more return on investment than Vanguard World. However, SPDR SP 500 is 1.24 times less risky than Vanguard World. It trades about 0.19 of its potential returns per unit of risk. Vanguard World is currently generating about 0.09 per unit of risk. If you would invest 769,192 in SPDR SP 500 on September 14, 2024 and sell it today you would earn a total of 447,622 from holding SPDR SP 500 or generate 58.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.25% |
| Values | Daily Returns |
SPDR SP 500 vs. Vanguard World
Performance |
| Timeline |
| SPDR SP 500 |
| Vanguard World |
SPDR SP and Vanguard World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Vanguard World
The main advantage of trading using opposite SPDR SP and Vanguard World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Vanguard World 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 Vanguard World will offset losses from the drop in Vanguard World'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 |
| Vanguard World vs. Vanguard Funds Public | Vanguard World vs. Vanguard Specialized Funds | Vanguard World vs. Vanguard World | Vanguard World vs. Vanguard Index 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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