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 Retail, 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
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Materials and SPDR is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and SPDR SP Retail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Retail 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 Retail 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 under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, Materials Select Sector is 1.61 times less risky than SPDR SP. The etf trades about -0.02 of its potential returns per unit of risk. The SPDR SP Retail is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 7,644 in SPDR SP Retail on August 29, 2024 and sell it today you would earn a total of 628.00 from holding SPDR SP Retail or generate 8.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Materials Select Sector vs. SPDR SP Retail
Performance |
| Timeline |
| Materials Select Sector |
| SPDR SP Retail |
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. Industrial Select Sector | Materials Select vs. Consumer Discretionary Select | Materials Select vs. Consumer Staples Select | Materials Select vs. Utilities Select Sector |
| SPDR SP vs. SPDR SP Homebuilders | SPDR SP vs. Consumer Discretionary Select | SPDR SP vs. SPDR SP Metals | SPDR SP 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
Other Complementary Tools
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Insider Screener Find insiders across different sectors to evaluate their impact on performance | |
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences |