Correlation Between Sp 500 and Money Market
Can any of the company-specific risk be diversified away by investing in both Sp 500 and Money Market 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 Money Market 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 Money Market Obligations, you can compare the effects of market volatilities on Sp 500 and Money Market 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 Money Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp 500 and Money Market.
Diversification Opportunities for Sp 500 and Money Market
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between USPRX and Money is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Sp 500 Index and Money Market Obligations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Money Market Obligations 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 Money Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Money Market Obligations has no effect on the direction of Sp 500 i.e., Sp 500 and Money Market go up and down completely randomly.
Pair Corralation between Sp 500 and Money Market
Assuming the 90 days horizon Sp 500 Index is expected to generate 5.18 times more return on investment than Money Market. However, Sp 500 is 5.18 times more volatile than Money Market Obligations. It trades about 0.25 of its potential returns per unit of risk. Money Market Obligations is currently generating about 0.13 per unit of risk. If you would invest 7,058 in Sp 500 Index on September 11, 2024 and sell it today you would earn a total of 754.00 from holding Sp 500 Index or generate 10.68% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Sp 500 Index vs. Money Market Obligations
Performance |
Timeline |
Sp 500 Index |
Money Market Obligations |
Sp 500 and Money Market Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Sp 500 and Money Market
The main advantage of trading using opposite Sp 500 and Money Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sp 500 position performs unexpectedly, Money Market 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 Money Market will offset losses from the drop in Money Market's long position.Sp 500 vs. Small Cap Stock | Sp 500 vs. Extended Market Index | Sp 500 vs. Value Fund Value | Sp 500 vs. Income Stock Fund |
Money Market vs. Small Cap Stock | Money Market vs. Federated High Yield | Money Market vs. Omni Small Cap Value | Money Market vs. Growth Fund C |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
Other Complementary Tools
Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios |