Correlation Between Financial Industries and Sp 500

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

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

Diversification Opportunities for Financial Industries and Sp 500

0.69

Correlation Coefficient

Financial Industries  Sp 500

Poor diversification

The 3 months correlation between Financial and USPRX is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund and Sp 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 Index and Financial Industries 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 Financial Industries Fund 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 Index has no effect on the direction of Financial Industries i.e., Financial Industries and Sp 500 go up and down completely randomly.

Pair Corralation between Financial Industries and Sp 500

Assuming the 90 days horizon Financial Industries is expected to generate 2.34 times less return on investment than Sp 500. In addition to that, Financial Industries is 1.39 times more volatile than Sp 500 Index. It trades about 0.07 of its total potential returns per unit of risk. Sp 500 Index is currently generating about 0.24 per unit of volatility. If you would invest  7,386  in Sp 500 Index on May 26, 2025 and sell it today you would earn a total of  700.00  from holding Sp 500 Index or generate 9.48% return on investment over 90 days.

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

Financial Industries Fund  vs.  Sp 500 Index

Financial Industries

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Industries Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Financial Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sp 500 Index

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sp 500 Index are ranked lower than 19 (%) 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 September 2025.

Pair Trading with Financial Industries and Sp 500

The main advantage of trading using opposite Financial Industries and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Industries 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 Financial Industries Fund and Sp 500 Index 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.