Correlation Between Energy Select and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Energy Select and SPDR SP 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 SPDR SP 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 SPDR SP Retail, you can compare the effects of market volatilities on Energy Select and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and SPDR SP.
Diversification Opportunities for Energy Select and SPDR SP
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between Energy and SPDR is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and SPDR SP Retail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Retail 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Retail has no effect on the direction of Energy Select i.e., Energy Select and SPDR SP go up and down completely randomly.
Pair Corralation between Energy Select and SPDR SP
Considering the 90-day investment horizon Energy Select is expected to generate 2.84 times less return on investment than SPDR SP. In addition to that, Energy Select is 1.18 times more volatile than SPDR SP Retail. It trades about 0.03 of its total potential returns per unit of risk. SPDR SP Retail is currently generating about 0.12 per unit of volatility. If you would invest 7,998 in SPDR SP Retail on November 5, 2024 and sell it today you would earn a total of 171.00 from holding SPDR SP Retail or generate 2.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Select Sector vs. SPDR SP Retail
Performance |
| Timeline |
| Energy Select Sector |
| SPDR SP Retail |
Energy Select and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Select and SPDR SP
The main advantage of trading using opposite Energy Select and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP'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 |
| SPDR SP vs. SPDR SP Homebuilders | SPDR SP vs. Consumer Discretionary Select | SPDR SP vs. SPDR SP Metals | SPDR SP 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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