Correlation Between Wahed FTSE and SP Funds

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

By analyzing existing cross correlation between Wahed FTSE USA and SP Funds SP, you can compare the effects of market volatilities on Wahed FTSE and SP Funds 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 Wahed FTSE with a short position of SP Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wahed FTSE and SP Funds.

Diversification Opportunities for Wahed FTSE and SP Funds

0.96

Correlation Coefficient

Wahed FTSE  SP Funds

Almost no diversification

The 3 months correlation between Wahed and SPUS is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Wahed FTSE USA and SP Funds SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds SP and Wahed FTSE 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 Wahed FTSE USA are associated (or correlated) with SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds SP has no effect on the direction of Wahed FTSE i.e., Wahed FTSE and SP Funds go up and down completely randomly.

Pair Corralation between Wahed FTSE and SP Funds

Given the investment horizon of 90 days Wahed FTSE is expected to generate 1.28 times less return on investment than SP Funds. But when comparing it to its historical volatility, Wahed FTSE USA is 1.16 times less risky than SP Funds. It trades about 0.07 of its potential returns per unit of risk. SP Funds SP is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,069  in SP Funds SP on August 30, 2024 and sell it today you would earn a total of  193.00  from holding SP Funds SP or generate 4.74% return on investment over 90 days.

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

Wahed FTSE USA  vs.  SP Funds SP

Wahed FTSE USA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wahed FTSE USA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Wahed FTSE is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

SP Funds SP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SP Funds SP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SP Funds is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Wahed FTSE and SP Funds

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

The idea behind Wahed FTSE USA and SP Funds SP 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.