Correlation Between SPDR SP and Franklin Libertyshares
Can any of the company-specific risk be diversified away by investing in both SPDR SP and Franklin Libertyshares 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 Franklin Libertyshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP Materials and Franklin Libertyshares ICAV, you can compare the effects of market volatilities on SPDR SP and Franklin Libertyshares 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 Franklin Libertyshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Franklin Libertyshares.
Diversification Opportunities for SPDR SP and Franklin Libertyshares
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SPDR and Franklin is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Materials and Franklin Libertyshares ICAV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Libertyshares 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 Materials are associated (or correlated) with Franklin Libertyshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Libertyshares has no effect on the direction of SPDR SP i.e., SPDR SP and Franklin Libertyshares go up and down completely randomly.
Pair Corralation between SPDR SP and Franklin Libertyshares
Assuming the 90 days trading horizon SPDR SP is expected to generate 1.69 times less return on investment than Franklin Libertyshares. But when comparing it to its historical volatility, SPDR SP Materials is 1.19 times less risky than Franklin Libertyshares. It trades about 0.04 of its potential returns per unit of risk. Franklin Libertyshares ICAV is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 2,504 in Franklin Libertyshares ICAV on September 12, 2024 and sell it today you would earn a total of 352.00 from holding Franklin Libertyshares ICAV or generate 14.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP Materials vs. Franklin Libertyshares ICAV
Performance |
| Timeline |
| SPDR SP Materials |
| Franklin Libertyshares |
SPDR SP and Franklin Libertyshares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Franklin Libertyshares
The main advantage of trading using opposite SPDR SP and Franklin Libertyshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Franklin Libertyshares 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 Franklin Libertyshares will offset losses from the drop in Franklin Libertyshares' long position.The idea behind SPDR SP Materials and Franklin Libertyshares ICAV pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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