Correlation Between SPDR SP and Principal
Can any of the company-specific risk be diversified away by investing in both SPDR SP and Principal 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 Principal 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 Principal, you can compare the effects of market volatilities on SPDR SP and Principal 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 Principal. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Principal.
Diversification Opportunities for SPDR SP and Principal
Very poor diversification
The 3 months correlation between SPDR and Principal is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Principal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal 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 Principal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal has no effect on the direction of SPDR SP i.e., SPDR SP and Principal go up and down completely randomly.
Pair Corralation between SPDR SP and Principal
Considering the 90-day investment horizon SPDR SP 500 is expected to generate 0.92 times more return on investment than Principal. However, SPDR SP 500 is 1.08 times less risky than Principal. It trades about 0.11 of its potential returns per unit of risk. Principal is currently generating about 0.1 per unit of risk. If you would invest 38,796 in SPDR SP 500 on September 4, 2024 and sell it today you would earn a total of 21,567 from holding SPDR SP 500 or generate 55.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 30.71% |
| Values | Daily Returns |
SPDR SP 500 vs. Principal
Performance |
| Timeline |
| SPDR SP 500 |
| Principal |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
SPDR SP and Principal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Principal
The main advantage of trading using opposite SPDR SP and Principal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Principal 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 Principal will offset losses from the drop in Principal's long position.| SPDR SP vs. SPDR Gold Shares | SPDR SP vs. Vanguard Real Estate | SPDR SP vs. Vanguard Total Stock | SPDR SP vs. Vanguard FTSE Emerging |
| Principal vs. Vanguard Total Stock | Principal vs. SPDR SP 500 | Principal vs. iShares Core SP | Principal vs. Vanguard Dividend Appreciation |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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