Correlation Between Vanguard Small and SSgA SPDR

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

By analyzing existing cross correlation between Vanguard Small Cap Index and SSgA SPDR ETFs, you can compare the effects of market volatilities on Vanguard Small and SSgA SPDR 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 Vanguard Small with a short position of SSgA SPDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and SSgA SPDR.

Diversification Opportunities for Vanguard Small and SSgA SPDR

0.98

Correlation Coefficient

Vanguard Small  SSgA SPDR

Almost no diversification

The 3 months correlation between Vanguard and SSgA is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs and Vanguard Small 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 Vanguard Small Cap Index are associated (or correlated) with SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of Vanguard Small i.e., Vanguard Small and SSgA SPDR go up and down completely randomly.

Pair Corralation between Vanguard Small and SSgA SPDR

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 0.82 times more return on investment than SSgA SPDR. However, Vanguard Small Cap Index is 1.22 times less risky than SSgA SPDR. It trades about 0.06 of its potential returns per unit of risk. SSgA SPDR ETFs is currently generating about 0.04 per unit of risk. If you would invest  19,552  in Vanguard Small Cap Index on September 30, 2024 and sell it today you would earn a total of  4,663  from holding Vanguard Small Cap Index or generate 23.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.93%
Values	Daily Returns

Vanguard Small Cap Index  vs.  SSgA SPDR ETFs

Vanguard Small Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

SSgA SPDR ETFs

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SSgA SPDR ETFs are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SSgA SPDR is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Small and SSgA SPDR

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

The idea behind Vanguard Small Cap Index and SSgA SPDR ETFs 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..