Correlation Between SPDR SP and Principal Value

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Can any of the company-specific risk be diversified away by investing in both SPDR SP and Principal Value 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 Principal Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 400 and Principal Value ETF, you can compare the effects of market volatilities on SPDR SP and Principal Value 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 Principal Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Principal Value.

Diversification Opportunities for SPDR SP and Principal Value

0.72
  Correlation Coefficient

Poor diversification

The 1 month correlation between SPDR and Principal is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and Principal Value ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Value ETF 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 400 are associated (or correlated) with Principal Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Value ETF has no effect on the direction of SPDR SP i.e., SPDR SP and Principal Value go up and down completely randomly.

Pair Corralation between SPDR SP and Principal Value

Given the investment horizon of 90 days SPDR SP 400 is expected to under-perform the Principal Value. In addition to that, SPDR SP is 1.59 times more volatile than Principal Value ETF. It trades about -0.03 of its total potential returns per unit of risk. Principal Value ETF is currently generating about 0.1 per unit of volatility. If you would invest  4,386  in Principal Value ETF on December 1, 2023 and sell it today you would earn a total of  63.00  from holding Principal Value ETF or generate 1.44% return on investment over 90 days.
Time Period1 Month [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

SPDR SP 400  vs.  Principal Value ETF

 Performance 
       Timeline  
SPDR SP 400 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Modest
Over the last 90 days SPDR SP 400 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The new stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Principal Value ETF 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Principal Value ETF are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Principal Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SPDR SP and Principal Value Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SPDR SP and Principal Value

The main advantage of trading using opposite SPDR SP and Principal Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Principal Value 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 Principal Value will offset losses from the drop in Principal Value's long position.
The idea behind SPDR SP 400 and Principal Value ETF 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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