Correlation Between Industrial Select and Consumer Discretionary
Can any of the company-specific risk be diversified away by investing in both Industrial Select and Consumer Discretionary 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 Consumer Discretionary 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 Consumer Discretionary Select, you can compare the effects of market volatilities on Industrial Select and Consumer Discretionary 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 Consumer Discretionary. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and Consumer Discretionary.
Diversification Opportunities for Industrial Select and Consumer Discretionary
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Industrial and Consumer is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and Consumer Discretionary Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Discretionary 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 Consumer Discretionary. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Discretionary has no effect on the direction of Industrial Select i.e., Industrial Select and Consumer Discretionary go up and down completely randomly.
Pair Corralation between Industrial Select and Consumer Discretionary
Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.9 times more return on investment than Consumer Discretionary. However, Industrial Select Sector is 1.11 times less risky than Consumer Discretionary. It trades about -0.01 of its potential returns per unit of risk. Consumer Discretionary Select is currently generating about -0.05 per unit of risk. If you would invest 13,775 in Industrial Select Sector on November 18, 2024 and sell it today you would lose (20.00) from holding Industrial Select Sector or give up 0.15% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Industrial Select Sector vs. Consumer Discretionary Select
Performance |
| Timeline |
| Industrial Select Sector |
| Consumer Discretionary |
Industrial Select and Consumer Discretionary Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Select and Consumer Discretionary
The main advantage of trading using opposite Industrial Select and Consumer Discretionary positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select position performs unexpectedly, Consumer Discretionary 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 Consumer Discretionary will offset losses from the drop in Consumer Discretionary'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 |
| Consumer Discretionary vs. Consumer Staples Select | Consumer Discretionary vs. Industrial Select Sector | Consumer Discretionary vs. Materials Select Sector | Consumer Discretionary 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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