Correlation Between Technology Select and ARK Fintech

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

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

Diversification Opportunities for Technology Select and ARK Fintech

0.84

Correlation Coefficient

Technology Select  ARK Fintech

Very poor diversification

The 3 months correlation between Technology and ARK is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and ARK Fintech Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Fintech Innovation and Technology 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 Technology Select Sector are associated (or correlated) with ARK Fintech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Fintech Innovation has no effect on the direction of Technology Select i.e., Technology Select and ARK Fintech go up and down completely randomly.

Pair Corralation between Technology Select and ARK Fintech

Considering the 90-day investment horizon Technology Select is expected to generate 4.22 times less return on investment than ARK Fintech. But when comparing it to its historical volatility, Technology Select Sector is 1.68 times less risky than ARK Fintech. It trades about 0.09 of its potential returns per unit of risk. ARK Fintech Innovation is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,966  in ARK Fintech Innovation on September 22, 2024 and sell it today you would earn a total of  887.00  from holding ARK Fintech Innovation or generate 29.91% return on investment over 90 days.

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

Technology Select Sector  vs.  ARK Fintech Innovation

Technology Select Sector

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, Technology Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ARK Fintech Innovation

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Fintech Innovation are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, ARK Fintech reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Technology Select and ARK Fintech

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

The idea behind Technology Select Sector and ARK Fintech Innovation 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.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.