Correlation Between SPDR Portfolio and ProShares

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

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

Diversification Opportunities for SPDR Portfolio and ProShares

0.6

Correlation Coefficient

SPDR Portfolio  ProShares

Poor diversification

The 3 months correlation between SPDR and ProShares is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and ProShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares SP 500 and SPDR Portfolio 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 Portfolio SP are associated (or correlated) with ProShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares SP 500 has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and ProShares go up and down completely randomly.

Pair Corralation between SPDR Portfolio and ProShares

Given the investment horizon of 90 days SPDR Portfolio SP is expected to under-perform the ProShares. But the etf apears to be less risky and, when comparing its historical volatility, SPDR Portfolio SP is 1.14 times less risky than ProShares. The etf trades about -0.01 of its potential returns per unit of risk. The ProShares SP 500 is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,874  in ProShares SP 500 on December 29, 2024 and sell it today you would earn a total of  212.00  from holding ProShares SP 500 or generate 2.15% return on investment over 90 days.

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

SPDR Portfolio SP  vs.  ProShares SP 500

SPDR Portfolio SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Portfolio SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

ProShares SP 500

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 3 (%) 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.

Pair Trading with SPDR Portfolio and ProShares

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

The idea behind SPDR Portfolio SP and ProShares 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.