Correlation Between Dow 2x and Sp 500

Can any of the company-specific risk be diversified away by investing in both Dow 2x and Sp 500 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 Dow 2x and Sp 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dow 2x Strategy and Sp 500 2x, you can compare the effects of market volatilities on Dow 2x and Sp 500 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 Dow 2x with a short position of Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow 2x and Sp 500.

Diversification Opportunities for Dow 2x and Sp 500

0.94

Correlation Coefficient

Dow 2x  Sp 500

Almost no diversification

The 3 months correlation between Dow and RYTNX is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Dow 2x Strategy and Sp 500 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 2x and Dow 2x 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 Dow 2x Strategy are associated (or correlated) with Sp 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp 500 2x has no effect on the direction of Dow 2x i.e., Dow 2x and Sp 500 go up and down completely randomly.

Pair Corralation between Dow 2x and Sp 500

Assuming the 90 days horizon Dow 2x Strategy is expected to generate 0.95 times more return on investment than Sp 500. However, Dow 2x Strategy is 1.06 times less risky than Sp 500. It trades about 0.12 of its potential returns per unit of risk. Sp 500 2x is currently generating about 0.09 per unit of risk. If you would invest  14,100  in Dow 2x Strategy on September 14, 2024 and sell it today you would earn a total of  1,525  from holding Dow 2x Strategy or generate 10.82% return on investment over 90 days.

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

Dow 2x Strategy  vs.  Sp 500 2x

Dow 2x Strategy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dow 2x Strategy are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dow 2x may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sp 500 2x

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sp 500 2x are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sp 500 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dow 2x and Sp 500

The main advantage of trading using opposite Dow 2x and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 2x position performs unexpectedly, Sp 500 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 Sp 500 will offset losses from the drop in Sp 500's long position.

The idea behind Dow 2x Strategy and Sp 500 2x 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.