Correlation Between Industrial Select and Utilities Select
Can any of the company-specific risk be diversified away by investing in both Industrial Select and Utilities 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 Utilities 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 Utilities Select Sector, you can compare the effects of market volatilities on Industrial Select and Utilities 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 Utilities Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and Utilities Select.
Diversification Opportunities for Industrial Select and Utilities Select
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Industrial and Utilities is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and Utilities Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities 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 Utilities Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Select Sector has no effect on the direction of Industrial Select i.e., Industrial Select and Utilities Select go up and down completely randomly.
Pair Corralation between Industrial Select and Utilities Select
Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.85 times more return on investment than Utilities Select. However, Industrial Select Sector is 1.17 times less risky than Utilities Select. It trades about 0.14 of its potential returns per unit of risk. Utilities Select Sector is currently generating about 0.12 per unit of risk. If you would invest 10,710 in Industrial Select Sector on August 27, 2024 and sell it today you would earn a total of 3,555 from holding Industrial Select Sector or generate 33.19% 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. Utilities Select Sector
Performance |
| Timeline |
| Industrial Select Sector |
| Utilities Select Sector |
Industrial Select and Utilities Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Select and Utilities Select
The main advantage of trading using opposite Industrial Select and Utilities Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select position performs unexpectedly, Utilities 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 Utilities Select will offset losses from the drop in Utilities 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 |
| Utilities Select vs. Consumer Staples Select | Utilities Select vs. Industrial Select Sector | Utilities Select vs. Materials Select Sector | Utilities 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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