Correlation Between SPDR Kensho and ARK Israel

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

By analyzing existing cross correlation between SPDR Kensho New and ARK Israel Innovative, you can compare the effects of market volatilities on SPDR Kensho and ARK Israel 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 Kensho with a short position of ARK Israel. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Kensho and ARK Israel.

Diversification Opportunities for SPDR Kensho and ARK Israel

0.88

Correlation Coefficient

SPDR Kensho  ARK Israel

Very poor diversification

The 3 months correlation between SPDR and ARK is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Kensho New and ARK Israel Innovative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Israel Innovative and SPDR Kensho 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 Kensho New are associated (or correlated) with ARK Israel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Israel Innovative has no effect on the direction of SPDR Kensho i.e., SPDR Kensho and ARK Israel go up and down completely randomly.

Pair Corralation between SPDR Kensho and ARK Israel

Given the investment horizon of 90 days SPDR Kensho New is expected to generate 1.0 times more return on investment than ARK Israel. However, SPDR Kensho New is 1.0 times less risky than ARK Israel. It trades about 0.09 of its potential returns per unit of risk. ARK Israel Innovative is currently generating about 0.08 per unit of risk. If you would invest  3,836  in SPDR Kensho New on October 1, 2024 and sell it today you would earn a total of  1,343  from holding SPDR Kensho New or generate 35.01% return on investment over 90 days.

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

SPDR Kensho New  vs.  ARK Israel Innovative

SPDR Kensho New

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Kensho New are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, SPDR Kensho may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ARK Israel Innovative

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Israel Innovative are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, ARK Israel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR Kensho and ARK Israel

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

The idea behind SPDR Kensho New and ARK Israel Innovative 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.