Correlation Between SPDR SP and Industrial Select

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

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

Diversification Opportunities for SPDR SP and Industrial Select

0.84

Correlation Coefficient

SPDR SP  Industrial Select

Very poor diversification

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

Pair Corralation between SPDR SP and Industrial Select

Considering the 90-day investment horizon SPDR SP is expected to generate 1.03 times less return on investment than Industrial Select. In addition to that, SPDR SP is 1.3 times more volatile than Industrial Select Sector. It trades about 0.11 of its total potential returns per unit of risk. Industrial Select Sector is currently generating about 0.15 per unit of volatility. If you would invest  13,103  in Industrial Select Sector on August 30, 2024 and sell it today you would earn a total of  1,215  from holding Industrial Select Sector or generate 9.27% return on investment over 90 days.

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

SPDR SP Retail  vs.  Industrial Select Sector

SPDR SP Retail

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Retail are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Industrial Select Sector

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Select Sector are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, Industrial Select may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with SPDR SP and Industrial Select

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

The idea behind SPDR SP Retail and Industrial Select Sector 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.