Correlation Between SPDR SP and Vulcan Value

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

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

Diversification Opportunities for SPDR SP and Vulcan Value

0.78

Correlation Coefficient

SPDR SP  Vulcan Value

Poor diversification

The 3 months correlation between SPDR and Vulcan is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Kensho and Vulcan Value Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Value Partners 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 Kensho are associated (or correlated) with Vulcan Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Value Partners has no effect on the direction of SPDR SP i.e., SPDR SP and Vulcan Value go up and down completely randomly.

Pair Corralation between SPDR SP and Vulcan Value

Given the investment horizon of 90 days SPDR SP Kensho is expected to generate 1.53 times more return on investment than Vulcan Value. However, SPDR SP is 1.53 times more volatile than Vulcan Value Partners. It trades about 0.12 of its potential returns per unit of risk. Vulcan Value Partners is currently generating about 0.01 per unit of risk. If you would invest  6,092  in SPDR SP Kensho on September 24, 2024 and sell it today you would earn a total of  614.00  from holding SPDR SP Kensho or generate 10.08% return on investment over 90 days.

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

SPDR SP Kensho  vs.  Vulcan Value Partners

SPDR SP Kensho

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Kensho are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vulcan Value Partners

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Vulcan Value Partners has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Vulcan Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and Vulcan Value

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

The idea behind SPDR SP Kensho and Vulcan Value Partners 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.