SPY vs S&P 500 Correlation Near All-Time High
Random observation for the day…
Below is the rolling 63-day (grey) and 252-day (red) correlation between daily % changes for SPY and the S&P 500 Index from early 1994.
Over the last year or so correlation between the two has been at all-time highs.
This may seem like a minor point, but fine differences in the performance of an ETF versus it’s underlying index is one reason why very active strategies (like the ones in our recent test of five short-term indicators) behave differently depending on the specific asset traded.
We trade leveraged mutual funds which more closely track the index itself, but for ETF traders this might have some significance.
If this trend continues it would indicate that, transaction costs and slippage aside, SPY is becoming a better and better closing price proxy for the S&P 500.
Geek note: I’ve used daily dividend-adjusted returns for both the S&P 500 Index and SPY. Dividends for the index were interpolated from quarterly data.
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