Correlation Between Financial Select and Global X

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

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

Diversification Opportunities for Financial Select and Global X

0.67

Correlation Coefficient

Financial Select  Global X

Poor diversification

The 3 months correlation between Financial and Global is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Global X Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Funds and Financial 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 Financial Select Sector are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Funds has no effect on the direction of Financial Select i.e., Financial Select and Global X go up and down completely randomly.

Pair Corralation between Financial Select and Global X

Considering the 90-day investment horizon Financial Select Sector is expected to generate 0.96 times more return on investment than Global X. However, Financial Select Sector is 1.04 times less risky than Global X. It trades about 0.09 of its potential returns per unit of risk. Global X Funds is currently generating about 0.03 per unit of risk. If you would invest  4,544  in Financial Select Sector on September 22, 2024 and sell it today you would earn a total of  307.00  from holding Financial Select Sector or generate 6.76% return on investment over 90 days.

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

Financial Select Sector  vs.  Global X Funds

Financial Select Sector

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, Financial Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Global X Funds

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Funds are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Global X is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Financial Select and Global X

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

The idea behind Financial Select Sector and Global X Funds 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.