Correlation Between Energy Select and Financial Select
Can any of the company-specific risk be diversified away by investing in both Energy Select and Financial Select 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 Financial Select 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 Financial Select Sector, you can compare the effects of market volatilities on Energy Select and Financial Select 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 Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and Financial Select.
Diversification Opportunities for Energy Select and Financial Select
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Energy and Financial is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector 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 Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of Energy Select i.e., Energy Select and Financial Select go up and down completely randomly.
Pair Corralation between Energy Select and Financial Select
Considering the 90-day investment horizon Energy Select is expected to generate 2.03 times less return on investment than Financial Select. In addition to that, Energy Select is 1.28 times more volatile than Financial Select Sector. It trades about 0.07 of its total potential returns per unit of risk. Financial Select Sector is currently generating about 0.17 per unit of volatility. If you would invest 3,468 in Financial Select Sector on August 24, 2024 and sell it today you would earn a total of 1,549 from holding Financial Select Sector or generate 44.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Select Sector vs. Financial Select Sector
Performance |
| Timeline |
| Energy Select Sector |
| Financial Select Sector |
Energy Select and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Select and Financial Select
The main advantage of trading using opposite Energy Select and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select position performs unexpectedly, Financial Select 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 Financial Select will offset losses from the drop in Financial Select'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 |
| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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