Correlation Between Technology Select and SPDR Morgan

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

By analyzing existing cross correlation between Technology Select Sector and SPDR Morgan Stanley, you can compare the effects of market volatilities on Technology Select and SPDR Morgan 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 Technology Select with a short position of SPDR Morgan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology Select and SPDR Morgan.

Diversification Opportunities for Technology Select and SPDR Morgan

0.97

Correlation Coefficient

Technology Select  SPDR Morgan

Almost no diversification

The 3 months correlation between Technology and SPDR is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and SPDR Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Morgan Stanley and Technology Select 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 Technology Select Sector are associated (or correlated) with SPDR Morgan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Morgan Stanley has no effect on the direction of Technology Select i.e., Technology Select and SPDR Morgan go up and down completely randomly.

Pair Corralation between Technology Select and SPDR Morgan

Considering the 90-day investment horizon Technology Select is expected to generate 1.45 times less return on investment than SPDR Morgan. In addition to that, Technology Select is 1.06 times more volatile than SPDR Morgan Stanley. It trades about 0.07 of its total potential returns per unit of risk. SPDR Morgan Stanley is currently generating about 0.1 per unit of volatility. If you would invest  18,852  in SPDR Morgan Stanley on August 30, 2024 and sell it today you would earn a total of  1,532  from holding SPDR Morgan Stanley or generate 8.13% return on investment over 90 days.

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

Technology Select Sector  vs.  SPDR Morgan Stanley

Technology Select Sector

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

SPDR Morgan Stanley

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Morgan Stanley are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, SPDR Morgan may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Technology Select and SPDR Morgan

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

The idea behind Technology Select Sector and SPDR Morgan Stanley 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.