Correlation Between SPDR SP and Invesco PHLX

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

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

Diversification Opportunities for SPDR SP and Invesco PHLX

0.83

Correlation Coefficient

SPDR SP  Invesco PHLX

Very poor diversification

The 3 months correlation between SPDR and Invesco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Semiconductor and Invesco PHLX Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco PHLX Semicon 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 Semiconductor are associated (or correlated) with Invesco PHLX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco PHLX Semicon has no effect on the direction of SPDR SP i.e., SPDR SP and Invesco PHLX go up and down completely randomly.

Pair Corralation between SPDR SP and Invesco PHLX

Considering the 90-day investment horizon SPDR SP Semiconductor is expected to generate 1.02 times more return on investment than Invesco PHLX. However, SPDR SP is 1.02 times more volatile than Invesco PHLX Semiconductor. It trades about 0.02 of its potential returns per unit of risk. Invesco PHLX Semiconductor is currently generating about -0.03 per unit of risk. If you would invest  24,003  in SPDR SP Semiconductor on August 30, 2024 and sell it today you would earn a total of  321.00  from holding SPDR SP Semiconductor or generate 1.34% return on investment over 90 days.

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

SPDR SP Semiconductor  vs.  Invesco PHLX Semiconductor

SPDR SP Semiconductor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Semiconductor are ranked lower than 1 (%) 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco PHLX Semicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco PHLX Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Invesco PHLX is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with SPDR SP and Invesco PHLX

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

The idea behind SPDR SP Semiconductor and Invesco PHLX Semiconductor 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.