Correlation Between Main Sector and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Main Sector 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 Main Sector and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Main Sector Rotation and SPDR SP 500, you can compare the effects of market volatilities on Main Sector 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 Main Sector with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Main Sector and SPDR SP.
Diversification Opportunities for Main Sector and SPDR SP
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Main and SPDR is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Main Sector Rotation and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and Main Sector 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 Main Sector Rotation 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 500 has no effect on the direction of Main Sector i.e., Main Sector and SPDR SP go up and down completely randomly.
Pair Corralation between Main Sector and SPDR SP
Given the investment horizon of 90 days Main Sector Rotation is expected to under-perform the SPDR SP. In addition to that, Main Sector is 1.12 times more volatile than SPDR SP 500. It trades about -0.29 of its total potential returns per unit of risk. SPDR SP 500 is currently generating about -0.28 per unit of volatility. If you would invest 52,048 in SPDR SP 500 on January 20, 2024 and sell it today you would lose (2,096) from holding SPDR SP 500 or give up 4.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 91.3% |
| Values | Daily Returns |
Main Sector Rotation vs. SPDR SP 500
Performance |
| Timeline |
| Main Sector Rotation |
| SPDR SP 500 |
Main Sector and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Main Sector and SPDR SP
The main advantage of trading using opposite Main Sector and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Main Sector 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.| Main Sector vs. Dimensional Targeted Value | Main Sector vs. Dimensional World ex | Main Sector vs. Dimensional Small Cap |
| SPDR SP vs. Dimensional Targeted Value | SPDR SP vs. Dimensional World ex | SPDR SP vs. Dimensional Small Cap |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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