Correlation Between IShares Energy and Energy Select
Can any of the company-specific risk be diversified away by investing in both IShares Energy 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 IShares Energy and Energy Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Energy ETF and Energy Select Sector, you can compare the effects of market volatilities on IShares Energy 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 IShares Energy with a short position of Energy Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Energy and Energy Select.
Diversification Opportunities for IShares Energy and Energy Select
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between IShares and Energy is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Energy ETF 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 IShares Energy 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 Energy ETF 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 IShares Energy i.e., IShares Energy and Energy Select go up and down completely randomly.
Pair Corralation between IShares Energy and Energy Select
Considering the 90-day investment horizon iShares Energy ETF is expected to generate 0.98 times more return on investment than Energy Select. However, iShares Energy ETF is 1.02 times less risky than Energy Select. It trades about 0.02 of its potential returns per unit of risk. Energy Select Sector is currently generating about 0.01 per unit of risk. If you would invest 4,484 in iShares Energy ETF on November 2, 2024 and sell it today you would earn a total of 293.00 from holding iShares Energy ETF or generate 6.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Energy ETF vs. Energy Select Sector
Performance |
| Timeline |
| iShares Energy ETF |
| Energy Select Sector |
IShares Energy and Energy Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Energy and Energy Select
The main advantage of trading using opposite IShares Energy and Energy Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Energy 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.| IShares Energy vs. iShares Basic Materials | IShares Energy vs. iShares Utilities ETF | IShares Energy vs. iShares Financials ETF | IShares Energy vs. iShares Healthcare ETF |
| 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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