Correlation Between SPDR SP and Stone Ridge

Can any of the company-specific risk be diversified away by investing in both SPDR SP and Stone Ridge 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 Stone Ridge 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 Stone Ridge 2051, you can compare the effects of market volatilities on SPDR SP and Stone Ridge 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 Stone Ridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Stone Ridge.

Diversification Opportunities for SPDR SP and Stone Ridge

-0.47

Correlation Coefficient

SPDR SP  Stone Ridge

Very good diversification

The 3 months correlation between SPDR and Stone is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Stone Ridge 2051 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stone Ridge 2051 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 Stone Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stone Ridge 2051 has no effect on the direction of SPDR SP i.e., SPDR SP and Stone Ridge go up and down completely randomly.

Pair Corralation between SPDR SP and Stone Ridge

Considering the 90-day investment horizon SPDR SP 500 is expected to generate 1.47 times more return on investment than Stone Ridge. However, SPDR SP is 1.47 times more volatile than Stone Ridge 2051. It trades about 0.2 of its potential returns per unit of risk. Stone Ridge 2051 is currently generating about -0.16 per unit of risk. If you would invest  55,039  in SPDR SP 500 on September 2, 2024 and sell it today you would earn a total of  5,216  from holding SPDR SP 500 or generate 9.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	85.94%
Values	Daily Returns

SPDR SP 500  vs.  Stone Ridge 2051

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.

Stone Ridge 2051

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stone Ridge 2051 has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Stone Ridge is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with SPDR SP and Stone Ridge

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

The idea behind SPDR SP 500 and Stone Ridge 2051 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.