Correlation Between Energy Select and VanEck Semiconductor
Can any of the company-specific risk be diversified away by investing in both Energy Select and VanEck Semiconductor 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 VanEck Semiconductor 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 VanEck Semiconductor ETF, you can compare the effects of market volatilities on Energy Select and VanEck Semiconductor 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 VanEck Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and VanEck Semiconductor.
Diversification Opportunities for Energy Select and VanEck Semiconductor
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Energy and VanEck is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and VanEck Semiconductor ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Semiconductor ETF 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 VanEck Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Semiconductor ETF has no effect on the direction of Energy Select i.e., Energy Select and VanEck Semiconductor go up and down completely randomly.
Pair Corralation between Energy Select and VanEck Semiconductor
Considering the 90-day investment horizon Energy Select is expected to generate 2.5 times less return on investment than VanEck Semiconductor. But when comparing it to its historical volatility, Energy Select Sector is 2.04 times less risky than VanEck Semiconductor. It trades about 0.04 of its potential returns per unit of risk. VanEck Semiconductor ETF is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 20,295 in VanEck Semiconductor ETF on November 5, 2024 and sell it today you would earn a total of 4,067 from holding VanEck Semiconductor ETF or generate 20.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Select Sector vs. VanEck Semiconductor ETF
Performance |
| Timeline |
| Energy Select Sector |
| VanEck Semiconductor ETF |
Energy Select and VanEck Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Select and VanEck Semiconductor
The main advantage of trading using opposite Energy Select and VanEck Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select position performs unexpectedly, VanEck Semiconductor 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 VanEck Semiconductor will offset losses from the drop in VanEck Semiconductor'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 |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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