Correlation Between Ultra Short-term and Sp 500
Can any of the company-specific risk be diversified away by investing in both Ultra Short-term 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 Ultra Short-term and Sp 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ultra Short Term Bond and Sp 500 Index, you can compare the effects of market volatilities on Ultra Short-term 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 Ultra Short-term with a short position of Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Short-term and Sp 500.
Diversification Opportunities for Ultra Short-term and Sp 500
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ultra and USPRX is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Term Bond and Sp 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 Index and Ultra Short-term 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 Ultra Short Term Bond 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 Index has no effect on the direction of Ultra Short-term i.e., Ultra Short-term and Sp 500 go up and down completely randomly.
Pair Corralation between Ultra Short-term and Sp 500
Assuming the 90 days horizon Ultra Short-term is expected to generate 58.68 times less return on investment than Sp 500. But when comparing it to its historical volatility, Ultra Short Term Bond is 14.86 times less risky than Sp 500. It trades about 0.1 of its potential returns per unit of risk. Sp 500 Index is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest 7,273 in Sp 500 Index on September 1, 2024 and sell it today you would earn a total of 450.00 from holding Sp 500 Index or generate 6.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Ultra Short Term Bond vs. Sp 500 Index
Performance |
| Timeline |
| Ultra Short Term |
| Sp 500 Index |
Ultra Short-term and Sp 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ultra Short-term and Sp 500
The main advantage of trading using opposite Ultra Short-term and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Short-term 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.| Ultra Short-term vs. Capital Growth Fund | Ultra Short-term vs. Emerging Markets Fund | Ultra Short-term vs. High Income Fund | Ultra Short-term vs. International Fund International |
| Sp 500 vs. Small Cap Stock | Sp 500 vs. Extended Market Index | Sp 500 vs. Value Fund Value | Sp 500 vs. Income Stock Fund |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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