Correlation Between Sp 500 and Dow 2x

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

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

Diversification Opportunities for Sp 500 and Dow 2x

0.94

Correlation Coefficient

Sp 500  Dow 2x

Almost no diversification

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

Pair Corralation between Sp 500 and Dow 2x

Assuming the 90 days horizon Sp 500 is expected to generate 1.27 times less return on investment than Dow 2x. In addition to that, Sp 500 is 1.06 times more volatile than Dow 2x Strategy. It trades about 0.09 of its total potential returns per unit of risk. Dow 2x Strategy is currently generating about 0.12 per unit of volatility. 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

Sp 500 2x  vs.  Dow 2x Strategy

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.

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.

Pair Trading with Sp 500 and Dow 2x

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

The idea behind Sp 500 2x and Dow 2x Strategy 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.