Correlation Between Energy Select and Invesco QQQ
Can any of the company-specific risk be diversified away by investing in both Energy Select and Invesco QQQ 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 Invesco QQQ 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 Invesco QQQ Trust, you can compare the effects of market volatilities on Energy Select and Invesco QQQ 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 Invesco QQQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and Invesco QQQ.
Diversification Opportunities for Energy Select and Invesco QQQ
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Energy and Invesco is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and Invesco QQQ Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco QQQ Trust 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 Invesco QQQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco QQQ Trust has no effect on the direction of Energy Select i.e., Energy Select and Invesco QQQ go up and down completely randomly.
Pair Corralation between Energy Select and Invesco QQQ
Considering the 90-day investment horizon Energy Select Sector is expected to generate 0.99 times more return on investment than Invesco QQQ. However, Energy Select Sector is 1.01 times less risky than Invesco QQQ. It trades about 0.34 of its potential returns per unit of risk. Invesco QQQ Trust is currently generating about 0.05 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 | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Energy Select Sector vs. Invesco QQQ Trust
Performance |
| Timeline |
| Energy Select Sector |
| Invesco QQQ Trust |
Energy Select and Invesco QQQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Select and Invesco QQQ
The main advantage of trading using opposite Energy Select and Invesco QQQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select position performs unexpectedly, Invesco QQQ 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 Invesco QQQ will offset losses from the drop in Invesco QQQ'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 |
| Invesco QQQ vs. SPDR SP 500 | Invesco QQQ vs. Vanguard SP 500 | Invesco QQQ vs. iShares Russell 2000 | Invesco QQQ vs. SPDR Dow Jones |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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