Correlation Between SP 500 and Aptiv PLC

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

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

Diversification Opportunities for SP 500 and Aptiv PLC

-0.69

Correlation Coefficient

SP 500  Aptiv PLC

Excellent diversification

The 3 months correlation between XSP and Aptiv is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding SP 500 MINI and Aptiv PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aptiv PLC and SP 500 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 SP 500 MINI are associated (or correlated) with Aptiv PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aptiv PLC has no effect on the direction of SP 500 i.e., SP 500 and Aptiv PLC go up and down completely randomly.

Pair Corralation between SP 500 and Aptiv PLC

Assuming the 90 days trading horizon SP 500 MINI is expected to under-perform the Aptiv PLC. But the index apears to be less risky and, when comparing its historical volatility, SP 500 MINI is 2.11 times less risky than Aptiv PLC. The index trades about -0.04 of its potential returns per unit of risk. The Aptiv PLC is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  5,211  in Aptiv PLC on September 20, 2024 and sell it today you would earn a total of  454.00  from holding Aptiv PLC or generate 8.71% return on investment over 90 days.

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

SP 500 MINI  vs.  Aptiv PLC

Pair Trading with SP 500 and Aptiv PLC

The main advantage of trading using opposite SP 500 and Aptiv PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP 500 position performs unexpectedly, Aptiv PLC 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 Aptiv PLC will offset losses from the drop in Aptiv PLC's long position.

The idea behind SP 500 MINI and Aptiv PLC 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.

Check out your portfolio center.

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.