Correlation Between Financial Select and Utilities Select
Can any of the company-specific risk be diversified away by investing in both Financial Select and Utilities Select 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 Utilities Select 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 Utilities Select Sector, you can compare the effects of market volatilities on Financial Select and Utilities Select 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 Utilities Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and Utilities Select.
Diversification Opportunities for Financial Select and Utilities Select
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Financial and Utilities is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Utilities Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Select Sector 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 Utilities Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Select Sector has no effect on the direction of Financial Select i.e., Financial Select and Utilities Select go up and down completely randomly.
Pair Corralation between Financial Select and Utilities Select
Considering the 90-day investment horizon Financial Select Sector is expected to generate 0.88 times more return on investment than Utilities Select. However, Financial Select Sector is 1.13 times less risky than Utilities Select. It trades about 0.17 of its potential returns per unit of risk. Utilities Select Sector is currently generating about 0.12 per unit of risk. If you would invest 3,559 in Financial Select Sector on August 27, 2024 and sell it today you would earn a total of 1,514 from holding Financial Select Sector or generate 42.54% 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. Utilities Select Sector
Performance |
| Timeline |
| Financial Select Sector |
| Utilities Select Sector |
Financial Select and Utilities Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Select and Utilities Select
The main advantage of trading using opposite Financial Select and Utilities Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select position performs unexpectedly, Utilities Select 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 Utilities Select will offset losses from the drop in Utilities Select'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 |
| Utilities Select vs. Consumer Staples Select | Utilities Select vs. Industrial Select Sector | Utilities Select vs. Materials Select Sector | Utilities Select vs. Health Care Select |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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