Correlation Between Freedom 100 and SPDR SSGA

Can any of the company-specific risk be diversified away by investing in both Freedom 100 and SPDR SSGA 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 Freedom 100 and SPDR SSGA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Freedom 100 Emerging and SPDR SSGA Large, you can compare the effects of market volatilities on Freedom 100 and SPDR SSGA 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 Freedom 100 with a short position of SPDR SSGA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freedom 100 and SPDR SSGA.

Diversification Opportunities for Freedom 100 and SPDR SSGA

-0.28

Correlation Coefficient

Freedom 100  SPDR SSGA

Very good diversification

The 3 months correlation between Freedom and SPDR is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Freedom 100 Emerging and SPDR SSGA Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSGA Large and Freedom 100 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 Freedom 100 Emerging are associated (or correlated) with SPDR SSGA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSGA Large has no effect on the direction of Freedom 100 i.e., Freedom 100 and SPDR SSGA go up and down completely randomly.

Pair Corralation between Freedom 100 and SPDR SSGA

Given the investment horizon of 90 days Freedom 100 Emerging is expected to under-perform the SPDR SSGA. In addition to that, Freedom 100 is 2.1 times more volatile than SPDR SSGA Large. It trades about -0.06 of its total potential returns per unit of risk. SPDR SSGA Large is currently generating about 0.18 per unit of volatility. If you would invest  16,643  in SPDR SSGA Large on September 3, 2024 and sell it today you would earn a total of  1,116  from holding SPDR SSGA Large or generate 6.71% return on investment over 90 days.

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

Freedom 100 Emerging  vs.  SPDR SSGA Large

Freedom 100 Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freedom 100 Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Freedom 100 is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

SPDR SSGA Large

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSGA Large are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal essential indicators, SPDR SSGA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Freedom 100 and SPDR SSGA

The main advantage of trading using opposite Freedom 100 and SPDR SSGA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freedom 100 position performs unexpectedly, SPDR SSGA 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 SSGA will offset losses from the drop in SPDR SSGA's long position.

The idea behind Freedom 100 Emerging and SPDR SSGA Large 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.