Correlation Between IShares Financial and Financial Select
Can any of the company-specific risk be diversified away by investing in both IShares Financial and Financial 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 Financial and Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Financial Services and Financial Select Sector, you can compare the effects of market volatilities on IShares Financial and Financial 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 Financial with a short position of Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Financial and Financial Select.
Diversification Opportunities for IShares Financial and Financial Select
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Financial is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financial Services and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and IShares Financial 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 Financial Services are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of IShares Financial i.e., IShares Financial and Financial Select go up and down completely randomly.
Pair Corralation between IShares Financial and Financial Select
Considering the 90-day investment horizon iShares Financial Services is expected to generate 1.19 times more return on investment than Financial Select. However, IShares Financial is 1.19 times more volatile than Financial Select Sector. It trades about 0.27 of its potential returns per unit of risk. Financial Select Sector is currently generating about 0.27 per unit of risk. If you would invest 7,434 in iShares Financial Services on August 30, 2024 and sell it today you would earn a total of 792.00 from holding iShares Financial Services or generate 10.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Financial Services vs. Financial Select Sector
Performance |
| Timeline |
| iShares Financial |
| Financial Select Sector |
IShares Financial and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Financial and Financial Select
The main advantage of trading using opposite IShares Financial and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Financial position performs unexpectedly, Financial 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 Financial Select will offset losses from the drop in Financial Select's long position.| IShares Financial vs. iShares Financials ETF | IShares Financial vs. iShares Consumer Discretionary | IShares Financial vs. iShares Industrials ETF | IShares Financial vs. iShares Consumer Staples |
| Financial Select vs. Vanguard Industrials Index | Financial Select vs. Vanguard Consumer Discretionary | Financial Select vs. Vanguard Materials Index | Financial Select vs. Vanguard Health Care |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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