Correlation Between Financial Select and Consumer Discretionary
Can any of the company-specific risk be diversified away by investing in both Financial Select and Consumer Discretionary 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 Consumer Discretionary 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 Consumer Discretionary Select, you can compare the effects of market volatilities on Financial Select and Consumer Discretionary 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 Consumer Discretionary. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and Consumer Discretionary.
Diversification Opportunities for Financial Select and Consumer Discretionary
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Financial and Consumer is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Consumer Discretionary Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Discretionary 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 Consumer Discretionary. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Discretionary has no effect on the direction of Financial Select i.e., Financial Select and Consumer Discretionary go up and down completely randomly.
Pair Corralation between Financial Select and Consumer Discretionary
Considering the 90-day investment horizon Financial Select is expected to generate 1.14 times less return on investment than Consumer Discretionary. But when comparing it to its historical volatility, Financial Select Sector is 1.27 times less risky than Consumer Discretionary. It trades about 0.09 of its potential returns per unit of risk. Consumer Discretionary Select is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 13,758 in Consumer Discretionary Select on August 29, 2024 and sell it today you would earn a total of 8,355 from holding Consumer Discretionary Select or generate 60.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Select Sector vs. Consumer Discretionary Select
Performance |
| Timeline |
| Financial Select Sector |
| Consumer Discretionary |
Financial Select and Consumer Discretionary Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Select and Consumer Discretionary
The main advantage of trading using opposite Financial Select and Consumer Discretionary positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select position performs unexpectedly, Consumer Discretionary 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 Consumer Discretionary will offset losses from the drop in Consumer Discretionary'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 |
| Consumer Discretionary vs. Consumer Staples Select | Consumer Discretionary vs. Industrial Select Sector | Consumer Discretionary vs. Materials Select Sector | Consumer Discretionary 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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