Correlation Between BetaPro SP and BetaPro Crude

Can any of the company-specific risk be diversified away by investing in both BetaPro SP and BetaPro Crude 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 BetaPro SP and BetaPro Crude into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BetaPro SP TSX and BetaPro Crude Oil, you can compare the effects of market volatilities on BetaPro SP and BetaPro Crude 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 BetaPro SP with a short position of BetaPro Crude. Check out your portfolio center. Please also check ongoing floating volatility patterns of BetaPro SP and BetaPro Crude.

Diversification Opportunities for BetaPro SP and BetaPro Crude

0.8

Correlation Coefficient

BetaPro SP  BetaPro Crude

Very poor diversification

The 3 months correlation between BetaPro and BetaPro is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BetaPro SP TSX and BetaPro Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BetaPro Crude Oil and BetaPro SP 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 BetaPro SP TSX are associated (or correlated) with BetaPro Crude. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BetaPro Crude Oil has no effect on the direction of BetaPro SP i.e., BetaPro SP and BetaPro Crude go up and down completely randomly.

Pair Corralation between BetaPro SP and BetaPro Crude

Assuming the 90 days trading horizon BetaPro SP TSX is expected to generate 0.94 times more return on investment than BetaPro Crude. However, BetaPro SP TSX is 1.06 times less risky than BetaPro Crude. It trades about 0.06 of its potential returns per unit of risk. BetaPro Crude Oil is currently generating about -0.01 per unit of risk. If you would invest  2,604  in BetaPro SP TSX on December 30, 2024 and sell it today you would earn a total of  221.00  from holding BetaPro SP TSX or generate 8.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

BetaPro SP TSX  vs.  BetaPro Crude Oil

BetaPro SP TSX

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BetaPro SP TSX are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BetaPro SP may actually be approaching a critical reversion point that can send shares even higher in April 2025.

BetaPro Crude Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days BetaPro Crude Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BetaPro Crude is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BetaPro SP and BetaPro Crude

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

The idea behind BetaPro SP TSX and BetaPro Crude Oil 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.