Correlation Between SPDR SP and Financial Select
Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SPDR SP and Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 500 and Financial Select Sector, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Financial Select.
Diversification Opportunities for SPDR SP and Financial Select
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SPDR and Financial is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 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 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 500 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 SPDR SP i.e., SPDR SP and Financial Select go up and down completely randomly.
Pair Corralation between SPDR SP and Financial Select
Considering the 90-day investment horizon SPDR SP is expected to generate 2.41 times less return on investment than Financial Select. But when comparing it to its historical volatility, SPDR SP 500 is 1.77 times less risky than Financial Select. It trades about 0.18 of its potential returns per unit of risk. Financial Select Sector is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 4,721 in Financial Select Sector on August 29, 2024 and sell it today you would earn a total of 395.00 from holding Financial Select Sector or generate 8.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP 500 vs. Financial Select Sector
Performance |
| Timeline |
| SPDR SP 500 |
| Financial Select Sector |
SPDR SP and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Financial Select
The main advantage of trading using opposite SPDR SP and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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.| SPDR SP vs. FT Vest Equity | SPDR SP vs. Northern Lights | SPDR SP vs. Dimensional International High | SPDR SP vs. First Trust Exchange Traded |
| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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