Correlation Between SP 500 and SP 500

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

Diversification Opportunities for SP 500 and SP 500

0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between SP 500 and SP 500 is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding SP 500 ETF and SP 500 Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 Technology 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 ETF are associated (or correlated) with SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 Technology has no effect on the direction of SP 500 i.e., SP 500 and SP 500 go up and down completely randomly.

Pair Corralation between SP 500 and SP 500

Considering the 90-day investment horizon SP 500 is expected to generate 1.31 times less return on investment than SP 500. But when comparing it to its historical volatility, SP 500 ETF is 1.31 times less risky than SP 500. It trades about 0.23 of its potential returns per unit of risk. SP 500 Technology is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  12,840  in SP 500 Technology on May 16, 2022 and sell it today you would earn a total of  2,221  from holding SP 500 Technology or generate 17.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

SP 500 ETF  vs.  SP 500 Technology

 Performance (%) 
       Timeline  
SP 500 ETF 
SP 500 Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in SP 500 ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, SP 500 may actually be approaching a critical reversion point that can send shares even higher in September 2022.

SP 500 Price Channel

SP 500 Technology 
SP 500 Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in SP 500 Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain essential indicators, SP 500 may actually be approaching a critical reversion point that can send shares even higher in September 2022.

SP 500 Price Channel

SP 500 and SP 500 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SP 500 and SP 500

The main advantage of trading using opposite SP 500 and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP 500 position performs unexpectedly, SP 500 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 SP 500 will offset losses from the drop in SP 500's long position.

SP 500 ETF

Pair trading matchups for SP 500

The idea behind SP 500 ETF and SP 500 Technology 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.

SP 500 Technology

Pair trading matchups for SP 500

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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