Correlation Between IShares SP and BetaPro SP

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

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

Diversification Opportunities for IShares SP and BetaPro SP

-0.42

Correlation Coefficient

IShares SP  BetaPro SP

Very good diversification

The 3 months correlation between IShares and BetaPro is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and BetaPro SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BetaPro SP 500 and IShares 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 iShares SP Mid Cap are associated (or correlated) with BetaPro SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BetaPro SP 500 has no effect on the direction of IShares SP i.e., IShares SP and BetaPro SP go up and down completely randomly.

Pair Corralation between IShares SP and BetaPro SP

Assuming the 90 days trading horizon iShares SP Mid Cap is expected to under-perform the BetaPro SP. In addition to that, IShares SP is 1.06 times more volatile than BetaPro SP 500. It trades about -0.12 of its total potential returns per unit of risk. BetaPro SP 500 is currently generating about 0.04 per unit of volatility. If you would invest  1,072  in BetaPro SP 500 on November 29, 2024 and sell it today you would earn a total of  21.00  from holding BetaPro SP 500 or generate 1.96% return on investment over 90 days.

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

iShares SP Mid Cap  vs.  BetaPro SP 500

iShares SP Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

BetaPro SP 500

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BetaPro SP 500 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BetaPro SP is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares SP and BetaPro SP

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

The idea behind iShares SP Mid Cap and BetaPro 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.