Correlation Between Industrial Select and Communication Services
Can any of the company-specific risk be diversified away by investing in both Industrial Select and Communication Services 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 Communication Services 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 Communication Services Select, you can compare the effects of market volatilities on Industrial Select and Communication Services 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 Communication Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and Communication Services.
Diversification Opportunities for Industrial Select and Communication Services
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Industrial and Communication is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and Communication Services Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Communication Services 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 Communication Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Communication Services has no effect on the direction of Industrial Select i.e., Industrial Select and Communication Services go up and down completely randomly.
Pair Corralation between Industrial Select and Communication Services
Considering the 90-day investment horizon Industrial Select is expected to generate 2.21 times less return on investment than Communication Services. In addition to that, Industrial Select is 1.07 times more volatile than Communication Services Select. It trades about 0.08 of its total potential returns per unit of risk. Communication Services Select is currently generating about 0.18 per unit of volatility. If you would invest 9,216 in Communication Services Select on November 1, 2024 and sell it today you would earn a total of 981.00 from holding Communication Services Select or generate 10.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Industrial Select Sector vs. Communication Services Select
Performance |
| Timeline |
| Industrial Select Sector |
| Communication Services |
Industrial Select and Communication Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Select and Communication Services
The main advantage of trading using opposite Industrial Select and Communication Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select position performs unexpectedly, Communication Services 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 Communication Services will offset losses from the drop in Communication Services' 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 |
| Communication Services vs. The Real Estate | Communication Services vs. Consumer Discretionary Select | Communication Services vs. Materials Select Sector | Communication Services vs. Industrial 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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