Correlation Between Strats SM and PPLUS Trust

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

By analyzing existing cross correlation between Strats SM Trust and PPLUS Trust Series, you can compare the effects of market volatilities on Strats SM and PPLUS Trust 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 Strats SM with a short position of PPLUS Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strats SM and PPLUS Trust.

Diversification Opportunities for Strats SM and PPLUS Trust

0.15

Correlation Coefficient

Strats SM  PPLUS Trust

Average diversification

The 3 months correlation between Strats and PPLUS is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Strats SM Trust and PPLUS Trust Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPLUS Trust Series and Strats SM 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 Strats SM Trust are associated (or correlated) with PPLUS Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPLUS Trust Series has no effect on the direction of Strats SM i.e., Strats SM and PPLUS Trust go up and down completely randomly.

Pair Corralation between Strats SM and PPLUS Trust

Considering the 90-day investment horizon Strats SM Trust is expected to generate 0.52 times more return on investment than PPLUS Trust. However, Strats SM Trust is 1.94 times less risky than PPLUS Trust. It trades about 0.01 of its potential returns per unit of risk. PPLUS Trust Series is currently generating about 0.0 per unit of risk. If you would invest  2,494  in Strats SM Trust on September 16, 2024 and sell it today you would earn a total of  6.00  from holding Strats SM Trust or generate 0.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

Strats SM Trust  vs.  PPLUS Trust Series

Strats SM Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Strats SM Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking indicators, Strats SM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

PPLUS Trust Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PPLUS Trust Series has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, PPLUS Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Strats SM and PPLUS Trust

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

The idea behind Strats SM Trust and PPLUS Trust Series 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.