Correlation Between ATT and Industrial Select
Can any of the company-specific risk be diversified away by investing in both ATT and Industrial 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 ATT and Industrial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ATT Inc and Industrial Select Sector, you can compare the effects of market volatilities on ATT and Industrial 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 ATT with a short position of Industrial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of ATT and Industrial Select.
Diversification Opportunities for ATT and Industrial Select
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ATT and Industrial is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Industrial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Select Sector and ATT 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 ATT Inc are associated (or correlated) with Industrial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Select Sector has no effect on the direction of ATT i.e., ATT and Industrial Select go up and down completely randomly.
Pair Corralation between ATT and Industrial Select
Taking into account the 90-day investment horizon ATT is expected to generate 1.13 times less return on investment than Industrial Select. But when comparing it to its historical volatility, ATT Inc is 1.07 times less risky than Industrial Select. It trades about 0.2 of its potential returns per unit of risk. Industrial Select Sector is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 13,562 in Industrial Select Sector on August 30, 2024 and sell it today you would earn a total of 756.00 from holding Industrial Select Sector or generate 5.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ATT Inc vs. Industrial Select Sector
Performance |
| Timeline |
| ATT Inc |
| Industrial Select Sector |
ATT and Industrial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ATT and Industrial Select
The main advantage of trading using opposite ATT and Industrial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT position performs unexpectedly, Industrial 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 Industrial Select will offset losses from the drop in Industrial Select's long position.The idea behind ATT Inc and Industrial Select Sector pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Industrial Select vs. Materials Select Sector | Industrial Select vs. Consumer Discretionary Select | Industrial Select vs. Consumer Staples Select | Industrial Select vs. Health Care Select |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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