Correlation Between SPDR SP and BNPP LC

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

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

Diversification Opportunities for SPDR SP and BNPP LC

-0.2

Correlation Coefficient

SPDR SP  BNPP LC

Good diversification

The 3 months correlation between SPDR and BNPP is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and BNPP LC EURPAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNPP LC EURPAB and SPDR 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 SPDR SP 500 are associated (or correlated) with BNPP LC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNPP LC EURPAB has no effect on the direction of SPDR SP i.e., SPDR SP and BNPP LC go up and down completely randomly.

Pair Corralation between SPDR SP and BNPP LC

Assuming the 90 days trading horizon SPDR SP 500 is expected to under-perform the BNPP LC. In addition to that, SPDR SP is 1.12 times more volatile than BNPP LC EURPAB. It trades about -0.13 of its total potential returns per unit of risk. BNPP LC EURPAB is currently generating about 0.18 per unit of volatility. If you would invest  1,190  in BNPP LC EURPAB on December 21, 2024 and sell it today you would earn a total of  125.00  from holding BNPP LC EURPAB or generate 10.5% return on investment over 90 days.

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

SPDR SP 500  vs.  BNPP LC EURPAB

SPDR SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

BNPP LC EURPAB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BNPP LC EURPAB are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, BNPP LC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with SPDR SP and BNPP LC

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

The idea behind SPDR SP 500 and BNPP LC EURPAB 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.