Correlation Between Industrial Select and Energy Select
Can any of the company-specific risk be diversified away by investing in both Industrial Select and Energy Select 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 Industrial Select and Energy Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Industrial Select Sector and Energy Select Sector, you can compare the effects of market volatilities on Industrial Select and Energy Select 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 Industrial Select with a short position of Energy Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and Energy Select.
Diversification Opportunities for Industrial Select and Energy Select
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Industrial and Energy is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and Energy Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Select Sector and Industrial 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 Industrial Select Sector are associated (or correlated) with Energy Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Select Sector has no effect on the direction of Industrial Select i.e., Industrial Select and Energy Select go up and down completely randomly.
Pair Corralation between Industrial Select and Energy Select
Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.74 times more return on investment than Energy Select. However, Industrial Select Sector is 1.35 times less risky than Energy Select. It trades about 0.01 of its potential returns per unit of risk. Energy Select Sector is currently generating about -0.06 per unit of risk. If you would invest 13,364 in Industrial Select Sector on September 23, 2024 and sell it today you would earn a total of 18.00 from holding Industrial Select Sector or generate 0.13% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Industrial Select Sector vs. Energy Select Sector
Performance |
Timeline |
Industrial Select Sector |
Energy Select Sector |
Industrial Select and Energy Select Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Industrial Select and Energy Select
The main advantage of trading using opposite Industrial Select and Energy Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select position performs unexpectedly, Energy Select 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 Energy Select will offset losses from the drop in Energy Select's long position.Industrial Select vs. Materials Select Sector | Industrial Select vs. Consumer Discretionary Select | Industrial Select vs. Consumer Staples Select | Industrial Select vs. Health Care Select |
Energy Select vs. Financial Select Sector | Energy Select vs. Health Care Select | Energy Select vs. Technology Select Sector | Energy Select vs. Utilities Select Sector |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
Other Complementary Tools
Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators | |
Global Correlations Find global opportunities by holding instruments from different markets | |
Positions Ratings Determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets | |
Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk |