Correlation Between Energy Select and SPDR Dow
Can any of the company-specific risk be diversified away by investing in both Energy Select and SPDR Dow 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 Energy Select and SPDR Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Select Sector and SPDR Dow Jones, you can compare the effects of market volatilities on Energy Select and SPDR Dow 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 Energy Select with a short position of SPDR Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and SPDR Dow.
Diversification Opportunities for Energy Select and SPDR Dow
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Energy and SPDR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones and Energy 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 Energy Select Sector are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of Energy Select i.e., Energy Select and SPDR Dow go up and down completely randomly.
Pair Corralation between Energy Select and SPDR Dow
Considering the 90-day investment horizon Energy Select is expected to generate 1.44 times less return on investment than SPDR Dow. In addition to that, Energy Select is 1.82 times more volatile than SPDR Dow Jones. It trades about 0.03 of its total potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.09 per unit of volatility. If you would invest 32,799 in SPDR Dow Jones on August 26, 2024 and sell it today you would earn a total of 11,517 from holding SPDR Dow Jones or generate 35.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Select Sector vs. SPDR Dow Jones
Performance |
| Timeline |
| Energy Select Sector |
| SPDR Dow Jones |
Energy Select and SPDR Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Select and SPDR Dow
The main advantage of trading using opposite Energy Select and SPDR Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select position performs unexpectedly, SPDR Dow 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 Dow will offset losses from the drop in SPDR Dow's long position.| Energy Select vs. Financial Select Sector | Energy Select vs. Health Care Select | Energy Select vs. Technology Select Sector | Energy Select vs. Utilities Select Sector |
| SPDR Dow vs. BlackRock ETF Trust | SPDR Dow vs. Rbb Fund | SPDR Dow vs. Virtus ETF Trust | SPDR Dow vs. Amplify CWP Enhanced |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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