Correlation Between Financial Select and Stone Ridge
Can any of the company-specific risk be diversified away by investing in both Financial Select and Stone Ridge 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 Stone Ridge 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 Stone Ridge 2054, you can compare the effects of market volatilities on Financial Select and Stone Ridge 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 Stone Ridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and Stone Ridge.
Diversification Opportunities for Financial Select and Stone Ridge
-0.53 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Financial and Stone is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Stone Ridge 2054 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stone Ridge 2054 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 Stone Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stone Ridge 2054 has no effect on the direction of Financial Select i.e., Financial Select and Stone Ridge go up and down completely randomly.
Pair Corralation between Financial Select and Stone Ridge
Considering the 90-day investment horizon Financial Select Sector is expected to generate 1.82 times more return on investment than Stone Ridge. However, Financial Select is 1.82 times more volatile than Stone Ridge 2054. It trades about 0.14 of its potential returns per unit of risk. Stone Ridge 2054 is currently generating about -0.22 per unit of risk. If you would invest 3,976 in Financial Select Sector on August 25, 2024 and sell it today you would earn a total of 1,097 from holding Financial Select Sector or generate 27.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 29.47% |
| Values | Daily Returns |
Financial Select Sector vs. Stone Ridge 2054
Performance |
| Timeline |
| Financial Select Sector |
| Stone Ridge 2054 |
Financial Select and Stone Ridge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Select and Stone Ridge
The main advantage of trading using opposite Financial Select and Stone Ridge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select position performs unexpectedly, Stone Ridge 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 Stone Ridge will offset losses from the drop in Stone Ridge'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 |
| Stone Ridge vs. Global X Funds | Stone Ridge vs. US Treasury 12 | Stone Ridge vs. Tidal Trust II | Stone Ridge vs. Franklin Liberty Treasury |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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