Correlation Between Materials Select and VanEck Agribusiness

Can any of the company-specific risk be diversified away by investing in both Materials Select and VanEck Agribusiness 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 Materials Select and VanEck Agribusiness into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Materials Select Sector and VanEck Agribusiness ETF, you can compare the effects of market volatilities on Materials Select and VanEck Agribusiness 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 Materials Select with a short position of VanEck Agribusiness. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and VanEck Agribusiness.

Diversification Opportunities for Materials Select and VanEck Agribusiness

0.69

Correlation Coefficient

Materials Select  VanEck Agribusiness

Poor diversification

The 3 months correlation between Materials and VanEck is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and VanEck Agribusiness ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Agribusiness ETF and Materials Select 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 Materials Select Sector are associated (or correlated) with VanEck Agribusiness. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Agribusiness ETF has no effect on the direction of Materials Select i.e., Materials Select and VanEck Agribusiness go up and down completely randomly.

Pair Corralation between Materials Select and VanEck Agribusiness

Considering the 90-day investment horizon Materials Select Sector is expected to under-perform the VanEck Agribusiness. But the etf apears to be less risky and, when comparing its historical volatility, Materials Select Sector is 1.03 times less risky than VanEck Agribusiness. The etf trades about -0.07 of its potential returns per unit of risk. The VanEck Agribusiness ETF is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  7,255  in VanEck Agribusiness ETF on September 14, 2024 and sell it today you would lose (176.00) from holding VanEck Agribusiness ETF or give up 2.43% of portfolio value over 90 days.

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

Materials Select Sector  vs.  VanEck Agribusiness ETF

Materials Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Materials Select is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

VanEck Agribusiness ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Agribusiness ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, VanEck Agribusiness is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Materials Select and VanEck Agribusiness

The main advantage of trading using opposite Materials Select and VanEck Agribusiness positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select position performs unexpectedly, VanEck Agribusiness 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 VanEck Agribusiness will offset losses from the drop in VanEck Agribusiness' long position.

The idea behind Materials Select Sector and VanEck Agribusiness ETF 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..