Correlation Between Materials Select and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Materials Select and SPDR SP 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 Materials Select and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Materials Select Sector and SPDR SP Global, you can compare the effects of market volatilities on Materials Select and SPDR SP 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 Materials Select with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and SPDR SP.
Diversification Opportunities for Materials Select and SPDR SP
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Materials and SPDR is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and SPDR SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Global and Materials Select 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 Materials Select Sector are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Global has no effect on the direction of Materials Select i.e., Materials Select and SPDR SP go up and down completely randomly.
Pair Corralation between Materials Select and SPDR SP
Considering the 90-day investment horizon Materials Select Sector is expected to generate 0.95 times more return on investment than SPDR SP. However, Materials Select Sector is 1.06 times less risky than SPDR SP. It trades about -0.02 of its potential returns per unit of risk. SPDR SP Global is currently generating about -0.07 per unit of risk. If you would invest 9,456 in Materials Select Sector on August 25, 2024 and sell it today you would lose (47.00) from holding Materials Select Sector or give up 0.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Materials Select Sector vs. SPDR SP Global
Performance |
| Timeline |
| Materials Select Sector |
| SPDR SP Global |
Materials Select and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Materials Select and SPDR SP
The main advantage of trading using opposite Materials Select and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.| Materials Select vs. Sprott Junior Copper | Materials Select vs. Sprott Junior Uranium | Materials Select vs. Sprott Nickel Miners | Materials Select vs. Sprott Uranium Miners |
| SPDR SP vs. Sprott Junior Copper | SPDR SP vs. Sprott Junior Uranium | SPDR SP vs. Sprott Nickel Miners | SPDR SP vs. Sprott Uranium Miners |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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