Correlation Between SPDR SP and Westwood Salient

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

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

Diversification Opportunities for SPDR SP and Westwood Salient

0.96

Correlation Coefficient

SPDR SP  Westwood Salient

Almost no diversification

The 3 months correlation between SPDR and Westwood is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Oil and Westwood Salient Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Salient Enhanced 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 Oil are associated (or correlated) with Westwood Salient. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Salient Enhanced has no effect on the direction of SPDR SP i.e., SPDR SP and Westwood Salient go up and down completely randomly.

Pair Corralation between SPDR SP and Westwood Salient

Considering the 90-day investment horizon SPDR SP Oil is expected to generate 1.66 times more return on investment than Westwood Salient. However, SPDR SP is 1.66 times more volatile than Westwood Salient Enhanced. It trades about 0.1 of its potential returns per unit of risk. Westwood Salient Enhanced is currently generating about 0.12 per unit of risk. If you would invest  13,350  in SPDR SP Oil on September 3, 2024 and sell it today you would earn a total of  1,198  from holding SPDR SP Oil or generate 8.97% 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 Oil  vs.  Westwood Salient Enhanced

SPDR SP Oil

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Oil are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Westwood Salient Enhanced

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Salient Enhanced are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical and fundamental indicators, Westwood Salient may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and Westwood Salient

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

The idea behind SPDR SP Oil and Westwood Salient Enhanced 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.