Correlation Between Financial Select and Invesco KBW
Can any of the company-specific risk be diversified away by investing in both Financial Select and Invesco KBW 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 Financial Select and Invesco KBW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Select Sector and Invesco KBW High, you can compare the effects of market volatilities on Financial Select and Invesco KBW 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 Financial Select with a short position of Invesco KBW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and Invesco KBW.
Diversification Opportunities for Financial Select and Invesco KBW
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Financial and Invesco is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Invesco KBW High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW High and Financial 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 Financial Select Sector are associated (or correlated) with Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW High has no effect on the direction of Financial Select i.e., Financial Select and Invesco KBW go up and down completely randomly.
Pair Corralation between Financial Select and Invesco KBW
Considering the 90-day investment horizon Financial Select Sector is expected to generate 0.81 times more return on investment than Invesco KBW. However, Financial Select Sector is 1.23 times less risky than Invesco KBW. It trades about 0.08 of its potential returns per unit of risk. Invesco KBW High is currently generating about 0.03 per unit of risk. If you would invest 3,566 in Financial Select Sector on November 2, 2024 and sell it today you would earn a total of 1,611 from holding Financial Select Sector or generate 45.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Select Sector vs. Invesco KBW High
Performance |
| Timeline |
| Financial Select Sector |
| Invesco KBW High |
Financial Select and Invesco KBW Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Select and Invesco KBW
The main advantage of trading using opposite Financial Select and Invesco KBW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select position performs unexpectedly, Invesco KBW 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 KBW will offset losses from the drop in Invesco KBW's long position.| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
| Invesco KBW vs. Direxion Daily Regional | Invesco KBW vs. iShares MSCI Europe | Invesco KBW vs. Fidelity MSCI Financials | Invesco KBW vs. Direxion Daily Financial |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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