Correlation Between SPDR SP and Foundations Dynamic

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

By analyzing existing cross correlation between SPDR SP 500 and Foundations Dynamic Core, you can compare the effects of market volatilities on SPDR SP and Foundations Dynamic 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 SP with a short position of Foundations Dynamic. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Foundations Dynamic.

Diversification Opportunities for SPDR SP and Foundations Dynamic

0.97

Correlation Coefficient

SPDR SP  Foundations Dynamic

Almost no diversification

The 3 months correlation between SPDR and Foundations is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Foundations Dynamic Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foundations Dynamic Core and SPDR SP 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 SP 500 are associated (or correlated) with Foundations Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foundations Dynamic Core has no effect on the direction of SPDR SP i.e., SPDR SP and Foundations Dynamic go up and down completely randomly.

Pair Corralation between SPDR SP and Foundations Dynamic

Considering the 90-day investment horizon SPDR SP is expected to generate 1.07 times less return on investment than Foundations Dynamic. But when comparing it to its historical volatility, SPDR SP 500 is 1.24 times less risky than Foundations Dynamic. It trades about 0.2 of its potential returns per unit of risk. Foundations Dynamic Core is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,216  in Foundations Dynamic Core on September 2, 2024 and sell it today you would earn a total of  123.00  from holding Foundations Dynamic Core or generate 10.12% return on investment over 90 days.

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

SPDR SP 500  vs.  Foundations Dynamic Core

SPDR SP 500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Foundations Dynamic Core

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Foundations Dynamic Core are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Foundations Dynamic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and Foundations Dynamic

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

The idea behind SPDR SP 500 and Foundations Dynamic Core 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 Transaction History module to view history of all your transactions and understand their impact on performance.