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
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.
SPDR SP 400 vs. Principal Value ETF
SPDR SP and Principal Value Volatility Contrast
Pair Trading with SPDR SP and Principal ValueThe 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.
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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