Correlation Between SPDR SSGA and FlexShares Quality

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

By analyzing existing cross correlation between SPDR SSGA Large and FlexShares Quality Dividend, you can compare the effects of market volatilities on SPDR SSGA and FlexShares Quality 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 SSGA with a short position of FlexShares Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SSGA and FlexShares Quality.

Diversification Opportunities for SPDR SSGA and FlexShares Quality

0.93

Correlation Coefficient

SPDR SSGA  FlexShares Quality

Almost no diversification

The 3 months correlation between SPDR and FlexShares is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SSGA Large and FlexShares Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality and SPDR SSGA 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 SSGA Large are associated (or correlated) with FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality has no effect on the direction of SPDR SSGA i.e., SPDR SSGA and FlexShares Quality go up and down completely randomly.

Pair Corralation between SPDR SSGA and FlexShares Quality

Given the investment horizon of 90 days SPDR SSGA is expected to generate 1.11 times less return on investment than FlexShares Quality. But when comparing it to its historical volatility, SPDR SSGA Large is 1.1 times less risky than FlexShares Quality. It trades about 0.18 of its potential returns per unit of risk. FlexShares Quality Dividend is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,627  in FlexShares Quality Dividend on September 2, 2024 and sell it today you would earn a total of  1,744  from holding FlexShares Quality Dividend or generate 30.99% return on investment over 90 days.

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

SPDR SSGA Large  vs.  FlexShares Quality Dividend

SPDR SSGA Large

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSGA Large are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal essential indicators, SPDR SSGA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FlexShares Quality

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Dividend are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, FlexShares Quality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SSGA and FlexShares Quality

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

The idea behind SPDR SSGA Large and FlexShares Quality Dividend 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.