Can any of the company-specific risk be diversified away by investing in both Listed Funds 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 Listed Funds and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Listed Funds Trust and SPDR SP Dividend, you can compare the effects of market volatilities on Listed Funds 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 Listed Funds with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Listed Funds and SPDR SP.
Diversification Opportunities for Listed Funds and SPDR SP
The 3 months correlation between Listed and SPDR is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Listed Funds Trust 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 Listed Funds 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 Listed Funds Trust 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 Listed Funds i.e., Listed Funds and SPDR SP go up and down completely randomly.
Given the investment horizon of 90 days Listed Funds is expected to generate 1.33 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Listed Funds Trust is 1.11 times less risky than SPDR SP. It trades about 0.35 of its potential returns per unit of risk. SPDR SP Dividend is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest 11,110 in SPDR SP Dividend on August 30, 2023 and sell it today you would earn a total of 766.00 from holding SPDR SP Dividend or generate 6.89% return on investment over 90 days.
Over the last 90 days Listed Funds Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Listed Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days SPDR SP Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. 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.
The main advantage of trading using opposite Listed Funds and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Listed Funds 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 Listed Funds Trust 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.
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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