Correlation Between Sp 500 and Intermediate-term

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

By analyzing existing cross correlation between Sp 500 Index and Intermediate Term Bond Fund, you can compare the effects of market volatilities on Sp 500 and Intermediate-term 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 Intermediate-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp 500 and Intermediate-term.

Diversification Opportunities for Sp 500 and Intermediate-term

-0.51

Correlation Coefficient

Sp 500  Intermediate-term

Excellent diversification

The 3 months correlation between USPRX and Intermediate-term is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Sp 500 Index and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond 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 Index are associated (or correlated) with Intermediate-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of Sp 500 i.e., Sp 500 and Intermediate-term go up and down completely randomly.

Pair Corralation between Sp 500 and Intermediate-term

Assuming the 90 days horizon Sp 500 Index is expected to under-perform the Intermediate-term. In addition to that, Sp 500 is 5.69 times more volatile than Intermediate Term Bond Fund. It trades about -0.11 of its total potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about 0.06 per unit of volatility. If you would invest  895.00  in Intermediate Term Bond Fund on January 23, 2025 and sell it today you would earn a total of  12.00  from holding Intermediate Term Bond Fund or generate 1.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Sp 500 Index  vs.  Intermediate Term Bond Fund

Sp 500 Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sp 500 Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Intermediate Term Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Bond 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, Intermediate-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sp 500 and Intermediate-term

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

The idea behind Sp 500 Index and Intermediate Term Bond Fund 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.