Correlation Between ProShares and SPDR Portfolio

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

By analyzing existing cross correlation between ProShares SP 500 and SPDR Portfolio SP, you can compare the effects of market volatilities on ProShares and SPDR Portfolio 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 ProShares with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and SPDR Portfolio.

Diversification Opportunities for ProShares and SPDR Portfolio

0.8

Correlation Coefficient

ProShares  SPDR Portfolio

Very poor diversification

The 3 months correlation between ProShares and SPDR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP 500 and SPDR Portfolio SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio SP and ProShares 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 ProShares SP 500 are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio SP has no effect on the direction of ProShares i.e., ProShares and SPDR Portfolio go up and down completely randomly.

Pair Corralation between ProShares and SPDR Portfolio

Given the investment horizon of 90 days ProShares is expected to generate 1.88 times less return on investment than SPDR Portfolio. But when comparing it to its historical volatility, ProShares SP 500 is 1.03 times less risky than SPDR Portfolio. It trades about 0.05 of its potential returns per unit of risk. SPDR Portfolio SP is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,744  in SPDR Portfolio SP on September 13, 2024 and sell it today you would earn a total of  1,596  from holding SPDR Portfolio SP or generate 42.64% return on investment over 90 days.

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

ProShares SP 500  vs.  SPDR Portfolio SP

ProShares SP 500

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, ProShares is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

SPDR Portfolio SP

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, SPDR Portfolio is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with ProShares and SPDR Portfolio

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

The idea behind ProShares SP 500 and SPDR Portfolio SP 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.