Correlation Between BetaPro SP and Vanguard

Can any of the company-specific risk be diversified away by investing in both BetaPro SP and Vanguard 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 Vanguard 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 Vanguard SP 500, you can compare the effects of market volatilities on BetaPro SP and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of BetaPro SP and Vanguard.

Diversification Opportunities for BetaPro SP and Vanguard

-0.28

Correlation Coefficient

BetaPro SP  Vanguard

Very good diversification

The 3 months correlation between BetaPro and Vanguard is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding BetaPro SP TSX and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of BetaPro SP i.e., BetaPro SP and Vanguard go up and down completely randomly.

Pair Corralation between BetaPro SP and Vanguard

Assuming the 90 days trading horizon BetaPro SP TSX is expected to under-perform the Vanguard. In addition to that, BetaPro SP is 3.25 times more volatile than Vanguard SP 500. It trades about -0.03 of its total potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.05 per unit of volatility. If you would invest  9,342  in Vanguard SP 500 on October 10, 2024 and sell it today you would earn a total of  207.00  from holding Vanguard SP 500 or generate 2.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BetaPro SP TSX  vs.  Vanguard SP 500

BetaPro SP TSX

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard SP 500

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard 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 Vanguard

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

The idea behind BetaPro SP TSX and Vanguard SP 500 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.