Correlation Between SPDR SP and KraneShares Trust

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

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

Diversification Opportunities for SPDR SP and KraneShares Trust

0.99

Correlation Coefficient

SPDR SP  KraneShares Trust

No risk reduction

The 3 months correlation between SPDR and KraneShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP China and KraneShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares Trust 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 China are associated (or correlated) with KraneShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares Trust has no effect on the direction of SPDR SP i.e., SPDR SP and KraneShares Trust go up and down completely randomly.

Pair Corralation between SPDR SP and KraneShares Trust

Considering the 90-day investment horizon SPDR SP China is expected to generate 1.23 times more return on investment than KraneShares Trust. However, SPDR SP is 1.23 times more volatile than KraneShares Trust. It trades about 0.09 of its potential returns per unit of risk. KraneShares Trust is currently generating about 0.07 per unit of risk. If you would invest  6,641  in SPDR SP China on September 3, 2024 and sell it today you would earn a total of  1,072  from holding SPDR SP China or generate 16.14% return on investment over 90 days.

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

SPDR SP China  vs.  KraneShares Trust

SPDR SP China

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP China are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish basic indicators, SPDR SP exhibited solid returns over the last few months and may actually be approaching a breakup point.

KraneShares Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KraneShares Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, KraneShares Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and KraneShares Trust

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

The idea behind SPDR SP China and KraneShares Trust 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.