Correlation Between Sp 500 and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Sp 500 and Basic Materials 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 Basic Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sp 500 Fund and Basic Materials Fund, you can compare the effects of market volatilities on Sp 500 and Basic Materials 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 Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp 500 and Basic Materials.
Diversification Opportunities for Sp 500 and Basic Materials
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between RYSPX and Basic is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Sp 500 Fund and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials 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 Fund are associated (or correlated) with Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Sp 500 i.e., Sp 500 and Basic Materials go up and down completely randomly.
Pair Corralation between Sp 500 and Basic Materials
Assuming the 90 days horizon Sp 500 Fund is expected to generate 0.86 times more return on investment than Basic Materials. However, Sp 500 Fund is 1.16 times less risky than Basic Materials. It trades about 0.33 of its potential returns per unit of risk. Basic Materials Fund is currently generating about 0.09 per unit of risk. If you would invest 8,776 in Sp 500 Fund on September 2, 2024 and sell it today you would earn a total of 466.00 from holding Sp 500 Fund or generate 5.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sp 500 Fund vs. Basic Materials Fund
Performance |
| Timeline |
| Sp 500 Fund |
| Basic Materials |
Sp 500 and Basic Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sp 500 and Basic Materials
The main advantage of trading using opposite Sp 500 and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sp 500 position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.| Sp 500 vs. Sp 500 Pure | Sp 500 vs. Russell 2000 Fund | Sp 500 vs. Sp Smallcap 600 | Sp 500 vs. Sp Midcap 400 |
| Basic Materials vs. Energy Fund Class | Basic Materials vs. Consumer Products Fund | Basic Materials vs. Aquagold International | Basic Materials vs. Thrivent High Yield |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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