Correlation Between Industrial Select and IShares Transportation
Can any of the company-specific risk be diversified away by investing in both Industrial Select and IShares Transportation 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 Transportation 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 Transportation Average, you can compare the effects of market volatilities on Industrial Select and IShares Transportation 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 Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and IShares Transportation.
Diversification Opportunities for Industrial Select and IShares Transportation
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Industrial and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and iShares Transportation Average in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Transportation 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 Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Transportation has no effect on the direction of Industrial Select i.e., Industrial Select and IShares Transportation go up and down completely randomly.
Pair Corralation between Industrial Select and IShares Transportation
Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.73 times more return on investment than IShares Transportation. However, Industrial Select Sector is 1.38 times less risky than IShares Transportation. It trades about 0.12 of its potential returns per unit of risk. iShares Transportation Average is currently generating about 0.07 per unit of risk. If you would invest 10,004 in Industrial Select Sector on September 1, 2024 and sell it today you would earn a total of 4,395 from holding Industrial Select Sector or generate 43.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Industrial Select Sector vs. iShares Transportation Average
Performance |
| Timeline |
| Industrial Select Sector |
| iShares Transportation |
Industrial Select and IShares Transportation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Select and IShares Transportation
The main advantage of trading using opposite Industrial Select and IShares Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select position performs unexpectedly, IShares Transportation 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 Transportation will offset losses from the drop in IShares Transportation'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 |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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