Correlation Between Virtus LifeSci and SPDR SP

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

Diversification Opportunities for Virtus LifeSci and SPDR SP

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Virtus and SPDR is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Virtus LifeSci Biotech and SPDR SP Homebuilders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Homebuilders and Virtus LifeSci 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 Virtus LifeSci Biotech 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 Homebuilders has no effect on the direction of Virtus LifeSci i.e., Virtus LifeSci and SPDR SP go up and down completely randomly.

Pair Corralation between Virtus LifeSci and SPDR SP

Considering the 90-day investment horizon Virtus LifeSci is expected to generate 2.59 times less return on investment than SPDR SP. In addition to that, Virtus LifeSci is 1.44 times more volatile than SPDR SP Homebuilders. It trades about 0.02 of its total potential returns per unit of risk. SPDR SP Homebuilders is currently generating about 0.08 per unit of volatility. If you would invest  6,059  in SPDR SP Homebuilders on December 30, 2023 and sell it today you would earn a total of  5,100  from holding SPDR SP Homebuilders or generate 84.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Virtus LifeSci Biotech  vs.  SPDR SP Homebuilders

 Performance 
       Timeline  
Virtus LifeSci Biotech 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Virtus LifeSci Biotech are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental drivers, Virtus LifeSci exhibited solid returns over the last few months and may actually be approaching a breakup point.
SPDR SP Homebuilders 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Homebuilders are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, SPDR SP sustained solid returns over the last few months and may actually be approaching a breakup point.

Virtus LifeSci and SPDR SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Virtus LifeSci and SPDR SP

The main advantage of trading using opposite Virtus LifeSci and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Virtus LifeSci 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 Virtus LifeSci Biotech and SPDR SP Homebuilders 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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