Correlation Between SPDR SP and ProShares Online

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

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

Diversification Opportunities for SPDR SP and ProShares Online

0.71

Correlation Coefficient

SPDR SP  ProShares Online

Poor diversification

The 3 months correlation between SPDR and ProShares is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Retail and ProShares Online Retail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Online Retail 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 Retail are associated (or correlated) with ProShares Online. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Online Retail has no effect on the direction of SPDR SP i.e., SPDR SP and ProShares Online go up and down completely randomly.

Pair Corralation between SPDR SP and ProShares Online

Considering the 90-day investment horizon SPDR SP is expected to generate 1.48 times less return on investment than ProShares Online. But when comparing it to its historical volatility, SPDR SP Retail is 1.18 times less risky than ProShares Online. It trades about 0.06 of its potential returns per unit of risk. ProShares Online Retail is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,811  in ProShares Online Retail on September 14, 2024 and sell it today you would earn a total of  1,980  from holding ProShares Online Retail or generate 70.44% return on investment over 90 days.

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

SPDR SP Retail  vs.  ProShares Online Retail

SPDR SP Retail

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Retail are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ProShares Online Retail

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Online Retail are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, ProShares Online displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR SP and ProShares Online

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

The idea behind SPDR SP Retail and ProShares Online Retail 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.