Correlation Between SPDR Dow and FlexShares Global

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

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

Diversification Opportunities for SPDR Dow and FlexShares Global

0.91

Correlation Coefficient

SPDR Dow  FlexShares Global

Almost no diversification

The 3 months correlation between SPDR and FlexShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and FlexShares Global Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Global Quality and SPDR Dow 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 Dow Jones are associated (or correlated) with FlexShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Global Quality has no effect on the direction of SPDR Dow i.e., SPDR Dow and FlexShares Global go up and down completely randomly.

Pair Corralation between SPDR Dow and FlexShares Global

Considering the 90-day investment horizon SPDR Dow is expected to generate 2.14 times less return on investment than FlexShares Global. In addition to that, SPDR Dow is 1.05 times more volatile than FlexShares Global Quality. It trades about 0.03 of its total potential returns per unit of risk. FlexShares Global Quality is currently generating about 0.07 per unit of volatility. If you would invest  6,065  in FlexShares Global Quality on August 30, 2024 and sell it today you would earn a total of  172.00  from holding FlexShares Global Quality or generate 2.84% return on investment over 90 days.

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

SPDR Dow Jones  vs.  FlexShares Global Quality

SPDR Dow Jones

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, SPDR Dow is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

FlexShares Global Quality

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Global Quality are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, FlexShares Global is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SPDR Dow and FlexShares Global

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

The idea behind SPDR Dow Jones and FlexShares Global Quality 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.