Correlation Between SPDR SP and Franklin Templeton

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

Diversification Opportunities for SPDR SP and Franklin Templeton

1.0

Correlation Coefficient

SPDR SP  Franklin Templeton

No risk reduction

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

Pair Corralation between SPDR SP and Franklin Templeton

Considering the 90-day investment horizon SPDR SP is expected to generate 1.06 times less return on investment than Franklin Templeton. But when comparing it to its historical volatility, SPDR SP 500 is 1.03 times less risky than Franklin Templeton. It trades about 0.2 of its potential returns per unit of risk. Franklin Templeton ETF is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4,809  in Franklin Templeton ETF on September 2, 2024 and sell it today you would earn a total of  484.00  from holding Franklin Templeton ETF or generate 10.06% return on investment over 90 days.

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

SPDR SP 500  vs.  Franklin Templeton ETF

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.

Franklin Templeton ETF

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Templeton ETF are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Franklin Templeton may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and Franklin Templeton

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

The idea behind SPDR SP 500 and Franklin Templeton ETF 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.