Correlation Between SPDR SP and Global X

Can any of the company-specific risk be diversified away by investing in both SPDR SP and Global X 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 Global X 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 Global X Lithium, you can compare the effects of market volatilities on SPDR SP and Global X 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 Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Global X.

Diversification Opportunities for SPDR SP and Global X

0.59

Correlation Coefficient

SPDR SP  Global X

Very weak diversification

The 3 months correlation between SPDR and Global is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Kensho and Global X Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Lithium 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 Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Lithium has no effect on the direction of SPDR SP i.e., SPDR SP and Global X go up and down completely randomly.

Pair Corralation between SPDR SP and Global X

Given the investment horizon of 90 days SPDR SP is expected to generate 1.5 times less return on investment than Global X. But when comparing it to its historical volatility, SPDR SP Kensho is 1.56 times less risky than Global X. It trades about 0.12 of its potential returns per unit of risk. Global X Lithium is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,768  in Global X Lithium on September 12, 2024 and sell it today you would earn a total of  660.00  from holding Global X Lithium or generate 17.52% return on investment over 90 days.

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

SPDR SP Kensho  vs.  Global X Lithium

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. Despite quite inconsistent forward indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Global X Lithium

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Lithium are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Global X unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR SP and Global X

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

The idea behind SPDR SP Kensho and Global X Lithium 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..