Correlation Between Industrial Select and Materials Select
Can any of the company-specific risk be diversified away by investing in both Industrial Select and Materials 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 Industrial Select and Materials Select 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 Materials Select Sector, you can compare the effects of market volatilities on Industrial Select and Materials 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 Industrial Select with a short position of Materials Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and Materials Select.
Diversification Opportunities for Industrial Select and Materials Select
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Industrial and Materials is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and Materials Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Select Sector 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 Materials Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Select Sector has no effect on the direction of Industrial Select i.e., Industrial Select and Materials Select go up and down completely randomly.
Pair Corralation between Industrial Select and Materials Select
Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.93 times more return on investment than Materials Select. However, Industrial Select Sector is 1.08 times less risky than Materials Select. It trades about 0.09 of its potential returns per unit of risk. Materials Select Sector is currently generating about 0.04 per unit of risk. If you would invest 9,628 in Industrial Select Sector on August 27, 2024 and sell it today you would earn a total of 4,637 from holding Industrial Select Sector or generate 48.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Industrial Select Sector vs. Materials Select Sector
Performance |
| Timeline |
| Industrial Select Sector |
| Materials Select Sector |
Industrial Select and Materials Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Select and Materials Select
The main advantage of trading using opposite Industrial Select and Materials Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select position performs unexpectedly, Materials 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 Materials Select will offset losses from the drop in Materials Select's long position.| Industrial Select vs. Gabelli ETFs Trust | Industrial Select vs. First Trust Exchange Traded | Industrial Select vs. Northern Lights | Industrial Select vs. First Trust Exchange Traded |
| Materials Select vs. Industrial Select Sector | Materials Select vs. Consumer Discretionary Select | Materials Select vs. Consumer Staples Select | Materials Select vs. Utilities Select Sector |
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 CEOs Directory module to screen CEOs from public companies around the world.
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