Correlation Between ProShares and SPDR SP

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Can any of the company-specific risk be diversified away by investing in both ProShares and SPDR SP 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 ProShares and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares SP 500 and SPDR SP 1500, you can compare the effects of market volatilities on ProShares and SPDR SP 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 ProShares with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and SPDR SP.

Diversification Opportunities for ProShares and SPDR SP

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between ProShares and SPDR is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP 500 and SPDR SP 1500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 1500 and ProShares 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 ProShares SP 500 are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 1500 has no effect on the direction of ProShares i.e., ProShares and SPDR SP go up and down completely randomly.

Pair Corralation between ProShares and SPDR SP

Given the investment horizon of 90 days ProShares is expected to generate 1.34 times less return on investment than SPDR SP. But when comparing it to its historical volatility, ProShares SP 500 is 1.52 times less risky than SPDR SP. It trades about 0.4 of its potential returns per unit of risk. SPDR SP 1500 is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  18,315  in SPDR SP 1500 on September 1, 2024 and sell it today you would earn a total of  1,254  from holding SPDR SP 1500 or generate 6.85% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

ProShares SP 500  vs.  SPDR SP 1500

 Performance 
       Timeline  
ProShares SP 500 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, ProShares is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.
SPDR SP 1500 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 1500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

ProShares and SPDR SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ProShares and SPDR SP

The main advantage of trading using opposite ProShares and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.
The idea behind ProShares SP 500 and SPDR SP 1500 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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