Correlation Between SPDR SP and Vanguard
Can any of the company-specific risk be diversified away by investing in both SPDR SP and Vanguard 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 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP Dividend and Vanguard SP 500, you can compare the effects of market volatilities on SPDR SP and Vanguard 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Vanguard.
Diversification Opportunities for SPDR SP and Vanguard
Very poor diversification
The 3 months correlation between SPDR and Vanguard is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Dividend and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 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 Dividend are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard go up and down completely randomly.
Pair Corralation between SPDR SP and Vanguard
Assuming the 90 days trading horizon SPDR SP is expected to generate 1.64 times less return on investment than Vanguard. But when comparing it to its historical volatility, SPDR SP Dividend is 1.2 times less risky than Vanguard. It trades about 0.19 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 10,195 in Vanguard SP 500 on August 25, 2024 and sell it today you would earn a total of 675.00 from holding Vanguard SP 500 or generate 6.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP Dividend vs. Vanguard SP 500
Performance |
| Timeline |
| SPDR SP Dividend |
| Vanguard SP 500 |
SPDR SP and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Vanguard
The main advantage of trading using opposite SPDR SP and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Vanguard 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 will offset losses from the drop in Vanguard's long position.| SPDR SP vs. Vanguard SP 500 | SPDR SP vs. SPDR Dow Jones | SPDR SP vs. iShares Core MSCI | SPDR SP vs. iShares SP 500 |
| Vanguard vs. Vanguard FTSE All World | Vanguard vs. iShares Core MSCI | Vanguard vs. Vanguard FTSE All World | Vanguard vs. Vanguard FTSE Emerging |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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