Correlation Between SPDR SP and Vanguard Health

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

By analyzing existing cross correlation between SPDR SP Biotech and Vanguard Health Care, you can compare the effects of market volatilities on SPDR SP and Vanguard Health 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 Vanguard Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Vanguard Health.

Diversification Opportunities for SPDR SP and Vanguard Health

0.58

Correlation Coefficient

SPDR SP  Vanguard Health

Very weak diversification

The 3 months correlation between SPDR and Vanguard is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Biotech and Vanguard Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Health Care 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 Biotech are associated (or correlated) with Vanguard Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Health Care has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard Health go up and down completely randomly.

Pair Corralation between SPDR SP and Vanguard Health

Considering the 90-day investment horizon SPDR SP Biotech is expected to generate 1.96 times more return on investment than Vanguard Health. However, SPDR SP is 1.96 times more volatile than Vanguard Health Care. It trades about -0.01 of its potential returns per unit of risk. Vanguard Health Care is currently generating about -0.12 per unit of risk. If you would invest  10,124  in SPDR SP Biotech on August 30, 2024 and sell it today you would lose (124.00) from holding SPDR SP Biotech or give up 1.22% of portfolio value over 90 days.

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

SPDR SP Biotech  vs.  Vanguard Health Care

SPDR SP Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, SPDR SP is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Vanguard Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SPDR SP and Vanguard Health

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

The idea behind SPDR SP Biotech and Vanguard Health Care 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.