Correlation Between SPDR SP and Xtrackers

Can any of the company-specific risk be diversified away by investing in both SPDR SP and Xtrackers 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 Xtrackers 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 Xtrackers SP 500, you can compare the effects of market volatilities on SPDR SP and Xtrackers 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 Xtrackers. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Xtrackers.

Diversification Opportunities for SPDR SP and Xtrackers

1.0

Correlation Coefficient

SPDR SP  Xtrackers

No risk reduction

The 3 months correlation between SPDR and Xtrackers is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Xtrackers SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 500 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP 500 has no effect on the direction of SPDR SP i.e., SPDR SP and Xtrackers go up and down completely randomly.

Pair Corralation between SPDR SP and Xtrackers

Considering the 90-day investment horizon SPDR SP is expected to generate 1.02 times less return on investment than Xtrackers. But when comparing it to its historical volatility, SPDR SP 500 is 1.01 times less risky than Xtrackers. It trades about 0.08 of its potential returns per unit of risk. Xtrackers SP 500 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,179  in Xtrackers SP 500 on September 23, 2024 and sell it today you would earn a total of  200.00  from holding Xtrackers SP 500 or generate 3.86% 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.  Xtrackers SP 500

SPDR SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Xtrackers SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Xtrackers is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SPDR SP and Xtrackers

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

The idea behind SPDR SP 500 and Xtrackers SP 500 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.