Correlation Between Industrial Select and IShares Biotechnology
Can any of the company-specific risk be diversified away by investing in both Industrial Select and IShares Biotechnology 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 Industrial Select and IShares Biotechnology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Industrial Select Sector and iShares Biotechnology ETF, you can compare the effects of market volatilities on Industrial Select and IShares Biotechnology 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 Industrial Select with a short position of IShares Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and IShares Biotechnology.
Diversification Opportunities for Industrial Select and IShares Biotechnology
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Industrial and IShares is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and iShares Biotechnology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Biotechnology ETF and Industrial 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 Industrial Select Sector are associated (or correlated) with IShares Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Biotechnology ETF has no effect on the direction of Industrial Select i.e., Industrial Select and IShares Biotechnology go up and down completely randomly.
Pair Corralation between Industrial Select and IShares Biotechnology
Considering the 90-day investment horizon Industrial Select Sector is expected to under-perform the IShares Biotechnology. But the etf apears to be less risky and, when comparing its historical volatility, Industrial Select Sector is 1.46 times less risky than IShares Biotechnology. The etf trades about -0.24 of its potential returns per unit of risk. The iShares Biotechnology ETF is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 13,837 in iShares Biotechnology ETF on November 27, 2024 and sell it today you would earn a total of 37.00 from holding iShares Biotechnology ETF or generate 0.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Industrial Select Sector vs. iShares Biotechnology ETF
Performance |
| Timeline |
| Industrial Select Sector |
| iShares Biotechnology ETF |
Industrial Select and IShares Biotechnology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Select and IShares Biotechnology
The main advantage of trading using opposite Industrial Select and IShares Biotechnology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select position performs unexpectedly, IShares Biotechnology 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 IShares Biotechnology will offset losses from the drop in IShares Biotechnology's long position.| Industrial Select vs. Materials Select Sector | Industrial Select vs. Consumer Discretionary Select | Industrial Select vs. Consumer Staples Select | Industrial Select vs. Health Care Select |
| IShares Biotechnology vs. First Trust Exchange Traded | IShares Biotechnology vs. Horizon Kinetics Medical | IShares Biotechnology vs. Harbor Health Care | IShares Biotechnology vs. Fidelity MSCI Health |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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