Correlation Between SPDR Portfolio and US Treasury

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

By analyzing existing cross correlation between SPDR Portfolio Mortgage and US Treasury 5, you can compare the effects of market volatilities on SPDR Portfolio and US Treasury 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 US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and US Treasury.

Diversification Opportunities for SPDR Portfolio and US Treasury

0.98

Correlation Coefficient

SPDR Portfolio  US Treasury

Almost no diversification

The 3 months correlation between SPDR and UFIV is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Mortgage and US Treasury 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 5 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 Mortgage are associated (or correlated) with US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 5 has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and US Treasury go up and down completely randomly.

Pair Corralation between SPDR Portfolio and US Treasury

Given the investment horizon of 90 days SPDR Portfolio Mortgage is expected to generate 1.65 times more return on investment than US Treasury. However, SPDR Portfolio is 1.65 times more volatile than US Treasury 5. It trades about 0.15 of its potential returns per unit of risk. US Treasury 5 is currently generating about 0.2 per unit of risk. If you would invest  2,180  in SPDR Portfolio Mortgage on September 12, 2024 and sell it today you would earn a total of  23.00  from holding SPDR Portfolio Mortgage or generate 1.06% return on investment over 90 days.

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

SPDR Portfolio Mortgage  vs.  US Treasury 5

SPDR Portfolio Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Portfolio Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, SPDR Portfolio is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

US Treasury 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 5 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, US Treasury is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with SPDR Portfolio and US Treasury

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

The idea behind SPDR Portfolio Mortgage and US Treasury 5 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.