Correlation Between Energy Select and Westwood Salient
Can any of the company-specific risk be diversified away by investing in both Energy Select and Westwood Salient 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 Westwood Salient 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 Westwood Salient Enhanced, you can compare the effects of market volatilities on Energy Select and Westwood Salient 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 Westwood Salient. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and Westwood Salient.
Diversification Opportunities for Energy Select and Westwood Salient
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Energy and Westwood is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and Westwood Salient Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Salient Enhanced 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 Westwood Salient. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Salient Enhanced has no effect on the direction of Energy Select i.e., Energy Select and Westwood Salient go up and down completely randomly.
Pair Corralation between Energy Select and Westwood Salient
Considering the 90-day investment horizon Energy Select Sector is expected to generate 1.28 times more return on investment than Westwood Salient. However, Energy Select is 1.28 times more volatile than Westwood Salient Enhanced. It trades about 0.05 of its potential returns per unit of risk. Westwood Salient Enhanced is currently generating about 0.06 per unit of risk. If you would invest 8,930 in Energy Select Sector on September 1, 2024 and sell it today you would earn a total of 623.00 from holding Energy Select Sector or generate 6.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Energy Select Sector vs. Westwood Salient Enhanced
Performance |
| Timeline |
| Energy Select Sector |
| Westwood Salient Enhanced |
Energy Select and Westwood Salient Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Select and Westwood Salient
The main advantage of trading using opposite Energy Select and Westwood Salient positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select position performs unexpectedly, Westwood Salient 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 Westwood Salient will offset losses from the drop in Westwood Salient'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 |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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