Correlation Between Energy Select and Consumer Staples

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

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

Diversification Opportunities for Energy Select and Consumer Staples

-0.01

Correlation Coefficient

Energy Select  Consumer Staples

Good diversification

The 3 months correlation between Energy and Consumer is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and Consumer Staples Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Staples Select and Energy 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 Energy Select Sector are associated (or correlated) with Consumer Staples. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Staples Select has no effect on the direction of Energy Select i.e., Energy Select and Consumer Staples go up and down completely randomly.

Pair Corralation between Energy Select and Consumer Staples

Considering the 90-day investment horizon Energy Select Sector is expected to under-perform the Consumer Staples. In addition to that, Energy Select is 2.13 times more volatile than Consumer Staples Select. It trades about -0.06 of its total potential returns per unit of risk. Consumer Staples Select is currently generating about -0.1 per unit of volatility. If you would invest  8,309  in Consumer Staples Select on September 23, 2024 and sell it today you would lose (315.00) from holding Consumer Staples Select or give up 3.79% of portfolio value over 90 days.

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

Energy Select Sector  vs.  Consumer Staples Select

Energy Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Energy Select is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Consumer Staples Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumer Staples Select has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable essential indicators, Consumer Staples is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Energy Select and Consumer Staples

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

The idea behind Energy Select Sector and Consumer Staples Select 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.