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 500, 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
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Financial and SPDR is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 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 500 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 Sector is expected to generate 1.79 times more return on investment than SPDR SP. However, Financial Select is 1.79 times more volatile than SPDR SP 500. It trades about 0.26 of its potential returns per unit of risk. SPDR SP 500 is currently generating about 0.15 per unit of risk. If you would invest 4,663 in Financial Select Sector on August 26, 2024 and sell it today you would earn a total of 410.00 from holding Financial Select Sector or generate 8.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Select Sector vs. SPDR SP 500
Performance |
| Timeline |
| Financial Select Sector |
| SPDR SP 500 |
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. FT Vest Equity | SPDR SP vs. Northern Lights | SPDR SP vs. Dimensional International High | SPDR SP vs. First Trust Exchange Traded |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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