Correlation Between Energy Select and Octane All
Can any of the company-specific risk be diversified away by investing in both Energy Select and Octane All 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 Octane All 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 Octane All Cap Value, you can compare the effects of market volatilities on Energy Select and Octane All 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 Octane All. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and Octane All.
Diversification Opportunities for Energy Select and Octane All
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Energy and Octane is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and Octane All Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Octane All Cap 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 Octane All. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Octane All Cap has no effect on the direction of Energy Select i.e., Energy Select and Octane All go up and down completely randomly.
Pair Corralation between Energy Select and Octane All
Considering the 90-day investment horizon Energy Select Sector is expected to under-perform the Octane All. But the etf apears to be less risky and, when comparing its historical volatility, Energy Select Sector is 1.17 times less risky than Octane All. The etf trades about -0.14 of its potential returns per unit of risk. The Octane All Cap Value is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,672 in Octane All Cap Value on October 7, 2024 and sell it today you would earn a total of 9.00 from holding Octane All Cap Value or generate 0.54% 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. Octane All Cap Value
Performance |
| Timeline |
| Energy Select Sector |
| Octane All Cap |
Energy Select and Octane All Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Select and Octane All
The main advantage of trading using opposite Energy Select and Octane All positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select position performs unexpectedly, Octane All 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 Octane All will offset losses from the drop in Octane All'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 |
| Octane All vs. First Trust Nasdaq | Octane All vs. First Trust Nasdaq | Octane All vs. First Trust Nasdaq | Octane All vs. First Trust Nasdaq |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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