Correlation Between SPDR Portfolio and Principal

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

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

Diversification Opportunities for SPDR Portfolio and Principal

0.9

Correlation Coefficient

SPDR Portfolio  Principal

Almost no diversification

The 3 months correlation between SPDR and Principal is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and Principal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal and SPDR Portfolio 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 Portfolio SP are associated (or correlated) with Principal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and Principal go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Principal

If you would invest  6,695  in SPDR Portfolio SP on September 19, 2024 and sell it today you would earn a total of  414.00  from holding SPDR Portfolio SP or generate 6.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	1.59%
Values	Daily Returns

SPDR Portfolio SP  vs.  Principal

SPDR Portfolio SP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Principal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Principal is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPDR Portfolio and Principal

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

The idea behind SPDR Portfolio SP and Principal 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.