Correlation Between Freedom Day and SPDR SP

Can any of the company-specific risk be diversified away by investing in both Freedom Day 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 Freedom Day and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Freedom Day Dividend and SPDR SP Dividend, you can compare the effects of market volatilities on Freedom Day 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 Freedom Day with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freedom Day and SPDR SP.

Diversification Opportunities for Freedom Day and SPDR SP

0.95

Correlation Coefficient

Freedom Day  SPDR SP

Almost no diversification

The 3 months correlation between Freedom and SPDR is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Day Dividend and SPDR SP Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Dividend and Freedom Day 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 Freedom Day Dividend 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 Dividend has no effect on the direction of Freedom Day i.e., Freedom Day and SPDR SP go up and down completely randomly.

Pair Corralation between Freedom Day and SPDR SP

Given the investment horizon of 90 days Freedom Day Dividend is expected to generate 1.09 times more return on investment than SPDR SP. However, Freedom Day is 1.09 times more volatile than SPDR SP Dividend. It trades about -0.19 of its potential returns per unit of risk. SPDR SP Dividend is currently generating about -0.21 per unit of risk. If you would invest  3,201  in Freedom Day Dividend on January 29, 2024 and sell it today you would lose (85.00) from holding Freedom Day Dividend or give up 2.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Freedom Day Dividend  vs.  SPDR SP Dividend

Freedom Day Dividend

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Freedom Day Dividend are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Freedom Day may actually be approaching a critical reversion point that can send shares even higher in May 2024.

SPDR SP Dividend

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Dividend are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Freedom Day and SPDR SP

The main advantage of trading using opposite Freedom Day and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freedom Day 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 Freedom Day Dividend and SPDR SP Dividend 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.

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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.