Correlation Between BetaPro SP and BetaPro NASDAQ

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

By analyzing existing cross correlation between BetaPro SP 500 and BetaPro NASDAQ 100 2x, you can compare the effects of market volatilities on BetaPro SP and BetaPro NASDAQ 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 NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of BetaPro SP and BetaPro NASDAQ.

Diversification Opportunities for BetaPro SP and BetaPro NASDAQ

0.85

Correlation Coefficient

BetaPro SP  BetaPro NASDAQ

Very poor diversification

The 3 months correlation between BetaPro and BetaPro is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BetaPro SP 500 and BetaPro NASDAQ 100 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BetaPro NASDAQ 100 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 500 are associated (or correlated) with BetaPro NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BetaPro NASDAQ 100 has no effect on the direction of BetaPro SP i.e., BetaPro SP and BetaPro NASDAQ go up and down completely randomly.

Pair Corralation between BetaPro SP and BetaPro NASDAQ

Assuming the 90 days trading horizon BetaPro SP is expected to generate 1.79 times less return on investment than BetaPro NASDAQ. In addition to that, BetaPro SP is 1.46 times more volatile than BetaPro NASDAQ 100 2x. It trades about 0.03 of its total potential returns per unit of risk. BetaPro NASDAQ 100 2x is currently generating about 0.08 per unit of volatility. If you would invest  1,027  in BetaPro NASDAQ 100 2x on December 28, 2024 and sell it today you would earn a total of  123.00  from holding BetaPro NASDAQ 100 2x or generate 11.98% return on investment over 90 days.

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

BetaPro SP 500  vs.  BetaPro NASDAQ 100 2x

BetaPro SP 500

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BetaPro SP 500 are ranked lower than 2 (%) 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 NASDAQ 100

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BetaPro NASDAQ 100 2x are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, BetaPro NASDAQ displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BetaPro SP and BetaPro NASDAQ

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

The idea behind BetaPro SP 500 and BetaPro NASDAQ 100 2x 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.