Correlation Between SP 500 and Flexshares Global

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Can any of the company-specific risk be diversified away by investing in both SP 500 and Flexshares Global 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 SP 500 and Flexshares Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SP 500 SPDR and Flexshares Global Broad, you can compare the effects of market volatilities on SP 500 and Flexshares Global 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 SP 500 with a short position of Flexshares Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP 500 and Flexshares Global.

Diversification Opportunities for SP 500 and Flexshares Global

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between SP 500 and Flexshares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding SP 500 SPDR and Flexshares Global Broad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flexshares Global Broad and SP 500 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 SP 500 SPDR are associated (or correlated) with Flexshares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flexshares Global Broad has no effect on the direction of SP 500 i.e., SP 500 and Flexshares Global go up and down completely randomly.

Pair Corralation between SP 500 and Flexshares Global

Considering the 90-day investment horizon SP 500 SPDR is expected to generate 1.34 times more return on investment than Flexshares Global. However, SP 500 is 1.34 times more volatile than Flexshares Global Broad. It trades about 0.02 of its potential returns per unit of risk. Flexshares Global Broad is currently generating about -0.01 per unit of risk. If you would invest  33,611  in SP 500 SPDR on June 27, 2022 and sell it today you would earn a total of  3,184  from holding SP 500 SPDR or generate 9.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

SP 500 SPDR  vs.  Flexshares Global Broad

 Performance (%) 
       Timeline  
SP 500 SPDR 
SP 500 Performance
0 of 100
Over the last 90 days SP 500 SPDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SP 500 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SP 500 Price Channel

Flexshares Global Broad 
Flexshares Performance
0 of 100
Over the last 90 days Flexshares Global Broad has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Flexshares Price Channel

SP 500 and Flexshares Global Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SP 500 and Flexshares Global

The main advantage of trading using opposite SP 500 and Flexshares Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP 500 position performs unexpectedly, Flexshares Global 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 Flexshares Global will offset losses from the drop in Flexshares Global's long position.
SP 500 vs. Total Stock Market
The idea behind SP 500 SPDR and Flexshares Global Broad 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.
Flexshares Global vs. Johnson Johnson
Check out your portfolio center. 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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