Correlation Between Vanguard Australian and SPDR SP

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Can any of the company-specific risk be diversified away by investing in both Vanguard Australian and SPDR SP 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 Vanguard Australian and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Australian Property and SPDR SP World, you can compare the effects of market volatilities on Vanguard Australian and SPDR SP 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 Vanguard Australian with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Australian and SPDR SP.

Diversification Opportunities for Vanguard Australian and SPDR SP

0.04
  Correlation Coefficient

Significant diversification

The 3 months correlation between Vanguard and SPDR is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Australian Property and SPDR SP World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP World and Vanguard Australian 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 Vanguard Australian Property are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP World has no effect on the direction of Vanguard Australian i.e., Vanguard Australian and SPDR SP go up and down completely randomly.

Pair Corralation between Vanguard Australian and SPDR SP

Assuming the 90 days trading horizon Vanguard Australian Property is expected to generate 1.71 times more return on investment than SPDR SP. However, Vanguard Australian is 1.71 times more volatile than SPDR SP World. It trades about 0.11 of its potential returns per unit of risk. SPDR SP World is currently generating about 0.17 per unit of risk. If you would invest  9,930  in Vanguard Australian Property on August 29, 2024 and sell it today you would earn a total of  295.00  from holding Vanguard Australian Property or generate 2.97% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Vanguard Australian Property  vs.  SPDR SP World

 Performance 
       Timeline  
Vanguard Australian 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Australian Property are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard Australian may actually be approaching a critical reversion point that can send shares even higher in December 2024.
SPDR SP World 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP World are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Vanguard Australian and SPDR SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Australian and SPDR SP

The main advantage of trading using opposite Vanguard Australian and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Australian position performs unexpectedly, SPDR SP 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 SP will offset losses from the drop in SPDR SP's long position.
The idea behind Vanguard Australian Property and SPDR SP World 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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