Correlation Between Industrial Select and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Industrial Select and SPDR SP 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 SPDR SP 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 SPDR SP Metals, you can compare the effects of market volatilities on Industrial Select and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and SPDR SP.
Diversification Opportunities for Industrial Select and SPDR SP
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Industrial and SPDR is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and SPDR SP Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Metals 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Metals has no effect on the direction of Industrial Select i.e., Industrial Select and SPDR SP go up and down completely randomly.
Pair Corralation between Industrial Select and SPDR SP
Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.54 times more return on investment than SPDR SP. However, Industrial Select Sector is 1.84 times less risky than SPDR SP. It trades about 0.23 of its potential returns per unit of risk. SPDR SP Metals is currently generating about 0.09 per unit of risk. If you would invest 13,580 in Industrial Select Sector on August 29, 2024 and sell it today you would earn a total of 791.00 from holding Industrial Select Sector or generate 5.82% 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. SPDR SP Metals
Performance |
| Timeline |
| Industrial Select Sector |
| SPDR SP Metals |
Industrial Select and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Select and SPDR SP
The main advantage of trading using opposite Industrial Select and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP'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 |
| SPDR SP vs. Materials Select Sector | SPDR SP vs. SPDR SP Oil | SPDR SP vs. SPDR SP Retail | SPDR SP vs. SPDR SP Homebuilders |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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