Correlation Between SPDR Barclays and SPDR SP

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

By analyzing existing cross correlation between SPDR Barclays 10 and SPDR SP Utilities, you can compare the effects of market volatilities on SPDR Barclays and SPDR SP 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 Barclays with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Barclays and SPDR SP.

Diversification Opportunities for SPDR Barclays and SPDR SP

0.25

Correlation Coefficient

SPDR Barclays  SPDR SP

Modest diversification

The 3 months correlation between SPDR and SPDR is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Barclays 10 and SPDR SP Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Utilities and SPDR Barclays 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 Barclays 10 are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Utilities has no effect on the direction of SPDR Barclays i.e., SPDR Barclays and SPDR SP go up and down completely randomly.

Pair Corralation between SPDR Barclays and SPDR SP

Assuming the 90 days trading horizon SPDR Barclays is expected to generate 1.89 times less return on investment than SPDR SP. But when comparing it to its historical volatility, SPDR Barclays 10 is 1.59 times less risky than SPDR SP. It trades about 0.07 of its potential returns per unit of risk. SPDR SP Utilities is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,256  in SPDR SP Utilities on September 13, 2024 and sell it today you would earn a total of  242.00  from holding SPDR SP Utilities or generate 5.69% return on investment over 90 days.

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

SPDR Barclays 10  vs.  SPDR SP Utilities

SPDR Barclays 10

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Barclays 10 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, SPDR Barclays is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR SP Utilities

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with SPDR Barclays and SPDR SP

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

The idea behind SPDR Barclays 10 and SPDR SP Utilities 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.