Correlation Between Energy Select and IShares Oil
Can any of the company-specific risk be diversified away by investing in both Energy Select and IShares Oil 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 IShares Oil 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 iShares Oil Gas, you can compare the effects of market volatilities on Energy Select and IShares Oil 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 IShares Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and IShares Oil.
Diversification Opportunities for Energy Select and IShares Oil
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Energy and IShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and iShares Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Oil Gas 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 IShares Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Oil Gas has no effect on the direction of Energy Select i.e., Energy Select and IShares Oil go up and down completely randomly.
Pair Corralation between Energy Select and IShares Oil
Considering the 90-day investment horizon Energy Select Sector is expected to generate 0.87 times more return on investment than IShares Oil. However, Energy Select Sector is 1.15 times less risky than IShares Oil. It trades about 0.03 of its potential returns per unit of risk. iShares Oil Gas is currently generating about 0.02 per unit of risk. If you would invest 8,164 in Energy Select Sector on August 24, 2024 and sell it today you would earn a total of 1,548 from holding Energy Select Sector or generate 18.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Select Sector vs. iShares Oil Gas
Performance |
| Timeline |
| Energy Select Sector |
| iShares Oil Gas |
Energy Select and IShares Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Select and IShares Oil
The main advantage of trading using opposite Energy Select and IShares Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select position performs unexpectedly, IShares Oil 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 IShares Oil will offset losses from the drop in IShares Oil'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 |
| IShares Oil vs. iShares Oil Equipment | IShares Oil vs. iShares Energy ETF | IShares Oil vs. Invesco Dynamic Energy | IShares Oil vs. SPDR SP Oil |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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