Correlation Between SPTSX Dividend and Dynamic Active

Can any of the company-specific risk be diversified away by investing in both SPTSX Dividend and Dynamic Active 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 SPTSX Dividend and Dynamic Active into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SPTSX Dividend Aristocrats and Dynamic Active Crossover, you can compare the effects of market volatilities on SPTSX Dividend and Dynamic Active 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 SPTSX Dividend with a short position of Dynamic Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPTSX Dividend and Dynamic Active.

Diversification Opportunities for SPTSX Dividend and Dynamic Active

0.38

Correlation Coefficient

SPTSX Dividend  Dynamic Active

Weak diversification

The 3 months correlation between SPTSX and Dynamic is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and Dynamic Active Crossover in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Crossover and SPTSX Dividend 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 SPTSX Dividend Aristocrats are associated (or correlated) with Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Crossover has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and Dynamic Active go up and down completely randomly.

Pair Corralation between SPTSX Dividend and Dynamic Active

Assuming the 90 days trading horizon SPTSX Dividend Aristocrats is expected to generate 1.9 times more return on investment than Dynamic Active. However, SPTSX Dividend is 1.9 times more volatile than Dynamic Active Crossover. It trades about 0.02 of its potential returns per unit of risk. Dynamic Active Crossover is currently generating about -0.02 per unit of risk. If you would invest  35,919  in SPTSX Dividend Aristocrats on September 26, 2024 and sell it today you would earn a total of  202.00  from holding SPTSX Dividend Aristocrats or generate 0.56% return on investment over 90 days.

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

SPTSX Dividend Aristocrats  vs.  Dynamic Active Crossover

Pair Trading with SPTSX Dividend and Dynamic Active

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

The idea behind SPTSX Dividend Aristocrats and Dynamic Active Crossover 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.