Correlation Between Invesco QQQ and Select Sector
Can any of the company-specific risk be diversified away by investing in both Invesco QQQ 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 Invesco QQQ and Select Sector into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco QQQ Trust and The Select Sector, you can compare the effects of market volatilities on Invesco QQQ 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 Invesco QQQ with a short position of Select Sector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco QQQ and Select Sector.
Diversification Opportunities for Invesco QQQ and Select Sector
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Invesco and Select is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Invesco QQQ 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 Invesco QQQ 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 Invesco QQQ 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 Invesco QQQ i.e., Invesco QQQ and Select Sector go up and down completely randomly.
Pair Corralation between Invesco QQQ and Select Sector
Assuming the 90 days trading horizon Invesco QQQ is expected to generate 1.07 times less return on investment than Select Sector. But when comparing it to its historical volatility, Invesco QQQ Trust is 1.2 times less risky than Select Sector. It trades about 0.15 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 311,820 in The Select Sector on September 1, 2024 and sell it today you would earn a total of 136,280 from holding The Select Sector or generate 43.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Invesco QQQ Trust vs. The Select Sector
Performance |
| Timeline |
| Invesco QQQ Trust |
| Select Sector |
Invesco QQQ and Select Sector Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco QQQ and Select Sector
The main advantage of trading using opposite Invesco QQQ and Select Sector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco QQQ 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.| Invesco QQQ vs. Invesco DB Multi Sector | Invesco QQQ vs. Invesco DB Multi Sector | Invesco QQQ vs. Invesco CurrencyShares Japanese | Invesco QQQ vs. Invesco DB Dollar |
| Select Sector vs. Promotora y Operadora | Select Sector vs. UnitedHealth Group Incorporated | Select Sector vs. Qulitas Controladora SAB | Select Sector vs. Hoteles City Express |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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