Correlation Between Energy Select and Vanguard
Can any of the company-specific risk be diversified away by investing in both Energy Select and Vanguard 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 Vanguard 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 Vanguard SP Mid Cap, you can compare the effects of market volatilities on Energy Select and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and Vanguard.
Diversification Opportunities for Energy Select and Vanguard
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Energy and Vanguard is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and Vanguard SP Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Mid 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Mid has no effect on the direction of Energy Select i.e., Energy Select and Vanguard go up and down completely randomly.
Pair Corralation between Energy Select and Vanguard
Considering the 90-day investment horizon Energy Select Sector is expected to generate 0.89 times more return on investment than Vanguard. However, Energy Select Sector is 1.12 times less risky than Vanguard. It trades about 0.34 of its potential returns per unit of risk. Vanguard SP Mid Cap is currently generating about 0.26 per unit of risk. If you would invest 8,784 in Energy Select Sector on August 30, 2024 and sell it today you would earn a total of 728.00 from holding Energy Select Sector or generate 8.29% 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. Vanguard SP Mid Cap
Performance |
| Timeline |
| Energy Select Sector |
| Vanguard SP Mid |
Energy Select and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Select and Vanguard
The main advantage of trading using opposite Energy Select and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select position performs unexpectedly, Vanguard 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 Vanguard will offset losses from the drop in Vanguard'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 |
| Vanguard vs. Vanguard SP Small Cap | Vanguard vs. Vanguard SP Mid Cap | Vanguard vs. Vanguard SP Mid Cap | Vanguard vs. Vanguard SP Small Cap |
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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