Correlation Between Banking Fund and Sp 500

Can any of the company-specific risk be diversified away by investing in both Banking Fund 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 Banking Fund and Sp 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Banking Fund Class and Sp 500 2x, you can compare the effects of market volatilities on Banking Fund 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 Banking Fund with a short position of Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banking Fund and Sp 500.

Diversification Opportunities for Banking Fund and Sp 500

0.83

Correlation Coefficient

Banking Fund  Sp 500

Very poor diversification

The 3 months correlation between BANKING and RYCTX is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Class and Sp 500 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 2x and Banking Fund 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 Banking Fund Class 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 2x has no effect on the direction of Banking Fund i.e., Banking Fund and Sp 500 go up and down completely randomly.

Pair Corralation between Banking Fund and Sp 500

Assuming the 90 days horizon Banking Fund Class is expected to generate 1.13 times more return on investment than Sp 500. However, Banking Fund is 1.13 times more volatile than Sp 500 2x. It trades about 0.15 of its potential returns per unit of risk. Sp 500 2x is currently generating about 0.11 per unit of risk. If you would invest  8,668  in Banking Fund Class on August 30, 2024 and sell it today you would earn a total of  1,460  from holding Banking Fund Class or generate 16.84% return on investment over 90 days.

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

Banking Fund Class  vs.  Sp 500 2x

Banking Fund Class

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Banking Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Sp 500 2x

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sp 500 2x are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sp 500 may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Banking Fund and Sp 500

The main advantage of trading using opposite Banking Fund and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banking Fund 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.

The idea behind Banking Fund Class and Sp 500 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .