Correlation Between Financial Select and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Financial 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 Financial 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 Financial Select Sector and SPDR SP Regional, you can compare the effects of market volatilities on Financial 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 Financial Select with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and SPDR SP.
Diversification Opportunities for Financial Select and SPDR SP
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Financial and SPDR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and SPDR SP Regional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Regional 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 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 Regional has no effect on the direction of Financial Select i.e., Financial Select and SPDR SP go up and down completely randomly.
Pair Corralation between Financial Select and SPDR SP
Considering the 90-day investment horizon Financial Select is expected to generate 2.08 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Financial Select Sector is 2.14 times less risky than SPDR SP. It trades about 0.22 of its potential returns per unit of risk. SPDR SP Regional is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 5,896 in SPDR SP Regional on August 25, 2024 and sell it today you would earn a total of 883.00 from holding SPDR SP Regional or generate 14.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Financial Select Sector vs. SPDR SP Regional
Performance |
| Timeline |
| Financial Select Sector |
| SPDR SP Regional |
Financial Select and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Select and SPDR SP
The main advantage of trading using opposite Financial Select and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial 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.| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
| SPDR SP vs. SPDR SP Bank | SPDR SP vs. SPDR SP Retail | SPDR SP vs. SPDR SP Homebuilders | SPDR SP vs. Financial 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 Stocks Directory module to find actively traded stocks across global markets.
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