Correlation Between Sp 500 and The Arbitrage
Can any of the company-specific risk be diversified away by investing in both Sp 500 and The Arbitrage 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 The Arbitrage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sp 500 Equal and The Arbitrage Fund, you can compare the effects of market volatilities on Sp 500 and The Arbitrage 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 The Arbitrage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp 500 and The Arbitrage.
Diversification Opportunities for Sp 500 and The Arbitrage
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between INDEX and The is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Sp 500 Equal and The Arbitrage Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Arbitrage 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 Equal are associated (or correlated) with The Arbitrage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Arbitrage has no effect on the direction of Sp 500 i.e., Sp 500 and The Arbitrage go up and down completely randomly.
Pair Corralation between Sp 500 and The Arbitrage
Assuming the 90 days horizon Sp 500 Equal is expected to generate 3.03 times more return on investment than The Arbitrage. However, Sp 500 is 3.03 times more volatile than The Arbitrage Fund. It trades about 0.19 of its potential returns per unit of risk. The Arbitrage Fund is currently generating about -0.01 per unit of risk. If you would invest 5,559 in Sp 500 Equal on August 29, 2024 and sell it today you would earn a total of 193.00 from holding Sp 500 Equal or generate 3.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sp 500 Equal vs. The Arbitrage Fund
Performance |
| Timeline |
| Sp 500 Equal |
| The Arbitrage |
Sp 500 and The Arbitrage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sp 500 and The Arbitrage
The main advantage of trading using opposite Sp 500 and The Arbitrage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sp 500 position performs unexpectedly, The Arbitrage 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 The Arbitrage will offset losses from the drop in The Arbitrage's long position.The idea behind Sp 500 Equal and The Arbitrage Fund 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.| The Arbitrage vs. The Arbitrage Fund | The Arbitrage vs. The Arbitrage Credit | The Arbitrage vs. The Arbitrage Credit | The Arbitrage vs. The Arbitrage Credit |
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 the Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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