Correlation Between SPDR SP and Virtus LifeSci

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

By analyzing existing cross correlation between SPDR SP Biotech and Virtus LifeSci Biotech, you can compare the effects of market volatilities on SPDR SP and Virtus LifeSci 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 Virtus LifeSci. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Virtus LifeSci.

Diversification Opportunities for SPDR SP and Virtus LifeSci

0.63

Correlation Coefficient

SPDR SP  Virtus LifeSci

Poor diversification

The 3 months correlation between SPDR and Virtus is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Biotech and Virtus LifeSci Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus LifeSci Biotech 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 Biotech are associated (or correlated) with Virtus LifeSci. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus LifeSci Biotech has no effect on the direction of SPDR SP i.e., SPDR SP and Virtus LifeSci go up and down completely randomly.

Pair Corralation between SPDR SP and Virtus LifeSci

Considering the 90-day investment horizon SPDR SP is expected to generate 1.75 times less return on investment than Virtus LifeSci. In addition to that, SPDR SP is 1.28 times more volatile than Virtus LifeSci Biotech. It trades about 0.02 of its total potential returns per unit of risk. Virtus LifeSci Biotech is currently generating about 0.04 per unit of volatility. If you would invest  3,997  in Virtus LifeSci Biotech on January 24, 2024 and sell it today you would earn a total of  1,156  from holding Virtus LifeSci Biotech or generate 28.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

SPDR SP Biotech  vs.  Virtus LifeSci Biotech

SPDR SP Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, SPDR SP is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Virtus LifeSci Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Virtus LifeSci Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Etf's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with SPDR SP and Virtus LifeSci

The main advantage of trading using opposite SPDR SP and Virtus LifeSci positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Virtus LifeSci 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 Virtus LifeSci will offset losses from the drop in Virtus LifeSci's long position.

The idea behind SPDR SP Biotech and Virtus LifeSci Biotech 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.