Correlation Between SPDR SP and SPDR Dow
Can any of the company-specific risk be diversified away by investing in both SPDR SP and SPDR Dow 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 SPDR Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP World and SPDR Dow Jones, you can compare the effects of market volatilities on SPDR SP and SPDR Dow 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 SPDR Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and SPDR Dow.
Diversification Opportunities for SPDR SP and SPDR Dow
Very weak diversification
The 3 months correlation between SPDR and SPDR is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP World and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones 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 World are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of SPDR SP i.e., SPDR SP and SPDR Dow go up and down completely randomly.
Pair Corralation between SPDR SP and SPDR Dow
Assuming the 90 days trading horizon SPDR SP is expected to generate 1.27 times less return on investment than SPDR Dow. But when comparing it to its historical volatility, SPDR SP World is 2.27 times less risky than SPDR Dow. It trades about 0.41 of its potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 2,137 in SPDR Dow Jones on September 3, 2024 and sell it today you would earn a total of 126.00 from holding SPDR Dow Jones or generate 5.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP World vs. SPDR Dow Jones
Performance |
| Timeline |
| SPDR SP World |
| SPDR Dow Jones |
SPDR SP and SPDR Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and SPDR Dow
The main advantage of trading using opposite SPDR SP and SPDR Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, SPDR Dow 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 Dow will offset losses from the drop in SPDR Dow's long position.| SPDR SP vs. Beta Shares SPASX | SPDR SP vs. Vanguard Australian Property | SPDR SP vs. SPDR SP 500 | SPDR SP vs. Vanguard Total Market |
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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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