Correlation Between ARK Next and SPDR MSCI

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

By analyzing existing cross correlation between ARK Next Generation and SPDR MSCI EAFE, you can compare the effects of market volatilities on ARK Next and SPDR MSCI 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 ARK Next with a short position of SPDR MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARK Next and SPDR MSCI.

Diversification Opportunities for ARK Next and SPDR MSCI

-0.77

Correlation Coefficient

ARK Next  SPDR MSCI

Pay attention - limited upside

The 3 months correlation between ARK and SPDR is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding ARK Next Generation and SPDR MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI EAFE and ARK Next 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 ARK Next Generation are associated (or correlated) with SPDR MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR MSCI EAFE has no effect on the direction of ARK Next i.e., ARK Next and SPDR MSCI go up and down completely randomly.

Pair Corralation between ARK Next and SPDR MSCI

Given the investment horizon of 90 days ARK Next Generation is expected to generate 2.24 times more return on investment than SPDR MSCI. However, ARK Next is 2.24 times more volatile than SPDR MSCI EAFE. It trades about 0.32 of its potential returns per unit of risk. SPDR MSCI EAFE is currently generating about -0.04 per unit of risk. If you would invest  7,634  in ARK Next Generation on September 4, 2024 and sell it today you would earn a total of  3,388  from holding ARK Next Generation or generate 44.38% return on investment over 90 days.

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

ARK Next Generation  vs.  SPDR MSCI EAFE

ARK Next Generation

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Next Generation are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, ARK Next showed solid returns over the last few months and may actually be approaching a breakup point.

SPDR MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SPDR MSCI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ARK Next and SPDR MSCI

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

The idea behind ARK Next Generation and SPDR MSCI EAFE 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.