Correlation Between Technology Select and Financial Select
Can any of the company-specific risk be diversified away by investing in both Technology Select and Financial 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 Technology Select and Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Technology Select Sector and Financial Select Sector, you can compare the effects of market volatilities on Technology Select and Financial 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 Technology Select with a short position of Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology Select and Financial Select.
Diversification Opportunities for Technology Select and Financial Select
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Technology and Financial is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and Technology 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 Technology Select Sector are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of Technology Select i.e., Technology Select and Financial Select go up and down completely randomly.
Pair Corralation between Technology Select and Financial Select
Considering the 90-day investment horizon Technology Select is expected to generate 1.14 times less return on investment than Financial Select. In addition to that, Technology Select is 2.66 times more volatile than Financial Select Sector. It trades about 0.08 of its total potential returns per unit of risk. Financial Select Sector is currently generating about 0.25 per unit of volatility. If you would invest 5,023 in Financial Select Sector on November 18, 2024 and sell it today you would earn a total of 157.00 from holding Financial Select Sector or generate 3.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Technology Select Sector vs. Financial Select Sector
Performance |
| Timeline |
| Technology Select Sector |
| Financial Select Sector |
Technology Select and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Technology Select and Financial Select
The main advantage of trading using opposite Technology Select and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Technology Select position performs unexpectedly, Financial 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 Financial Select will offset losses from the drop in Financial Select's long position.| Technology Select vs. First Trust Technology | Technology Select vs. Fidelity MSCI Information | Technology Select vs. First Trust Nasdaq | Technology Select vs. iShares Expanded Tech Software |
| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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