Correlation Between SPDR SP and SPDR Barclays
Can any of the company-specific risk be diversified away by investing in both SPDR SP and SPDR Barclays 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 Barclays into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP Bank and SPDR Barclays Intermediate, you can compare the effects of market volatilities on SPDR SP and SPDR Barclays 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 Barclays. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and SPDR Barclays.
Diversification Opportunities for SPDR SP and SPDR Barclays
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between SPDR and SPDR is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Bank and SPDR Barclays Intermediate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Barclays Interm 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 Bank are associated (or correlated) with SPDR Barclays. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Barclays Interm has no effect on the direction of SPDR SP i.e., SPDR SP and SPDR Barclays go up and down completely randomly.
Pair Corralation between SPDR SP and SPDR Barclays
Considering the 90-day investment horizon SPDR SP Bank is expected to generate 5.75 times more return on investment than SPDR Barclays. However, SPDR SP is 5.75 times more volatile than SPDR Barclays Intermediate. It trades about 0.11 of its potential returns per unit of risk. SPDR Barclays Intermediate is currently generating about 0.08 per unit of risk. If you would invest 3,881 in SPDR SP Bank on January 25, 2024 and sell it today you would earn a total of 715.00 from holding SPDR SP Bank or generate 18.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.04% |
| Values | Daily Returns |
SPDR SP Bank vs. SPDR Barclays Intermediate
Performance |
| Timeline |
| SPDR SP Bank |
| SPDR Barclays Interm |
SPDR SP and SPDR Barclays Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and SPDR Barclays
The main advantage of trading using opposite SPDR SP and SPDR Barclays positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, SPDR Barclays 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 Barclays will offset losses from the drop in SPDR Barclays' long position.The idea behind SPDR SP Bank and SPDR Barclays Intermediate 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.| SPDR Barclays vs. iShares iBoxx High | SPDR Barclays vs. iShares 1 3 Year | SPDR Barclays vs. iShares TIPS Bond | SPDR Barclays vs. iShares 7 10 Year |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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