Correlation Between IShares Trust and Select Sector
Can any of the company-specific risk be diversified away by investing in both IShares Trust and Select Sector 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 IShares Trust and Select Sector into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Trust and The Select Sector, you can compare the effects of market volatilities on IShares Trust and Select Sector 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 IShares Trust with a short position of Select Sector. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Trust and Select Sector.
Diversification Opportunities for IShares Trust and Select Sector
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and Select is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and The Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Sector and IShares Trust 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 iShares Trust are associated (or correlated) with Select Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Sector has no effect on the direction of IShares Trust i.e., IShares Trust and Select Sector go up and down completely randomly.
Pair Corralation between IShares Trust and Select Sector
Assuming the 90 days trading horizon IShares Trust is expected to generate 2.56 times less return on investment than Select Sector. But when comparing it to its historical volatility, iShares Trust is 2.82 times less risky than Select Sector. It trades about 0.16 of its potential returns per unit of risk. The Select Sector is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 159,394 in The Select Sector on August 28, 2024 and sell it today you would earn a total of 8,082 from holding The Select Sector or generate 5.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
iShares Trust vs. The Select Sector
Performance |
| Timeline |
| iShares Trust |
| Select Sector |
IShares Trust and Select Sector Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Trust and Select Sector
The main advantage of trading using opposite IShares Trust and Select Sector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust position performs unexpectedly, Select Sector 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 Select Sector will offset losses from the drop in Select Sector's long position.| IShares Trust vs. Vanguard Index Funds | IShares Trust vs. Vanguard Index Funds | IShares Trust vs. Vanguard Tax Managed Funds | IShares Trust vs. Vanguard International Equity |
| Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard Tax Managed Funds | Select Sector vs. Vanguard International Equity |
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 CEOs Directory module to screen CEOs from public companies around the world.
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