Correlation Between Technology Select and Industrial Select
Can any of the company-specific risk be diversified away by investing in both Technology Select and Industrial 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 Industrial 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 Industrial Select Sector, you can compare the effects of market volatilities on Technology Select and Industrial 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 Industrial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology Select and Industrial Select.
Diversification Opportunities for Technology Select and Industrial Select
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Technology and Industrial is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and Industrial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial 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 Industrial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Select Sector has no effect on the direction of Technology Select i.e., Technology Select and Industrial Select go up and down completely randomly.
Pair Corralation between Technology Select and Industrial Select
Considering the 90-day investment horizon Technology Select is expected to generate 2.89 times less return on investment than Industrial Select. In addition to that, Technology Select is 1.19 times more volatile than Industrial Select Sector. It trades about 0.03 of its total potential returns per unit of risk. Industrial Select Sector is currently generating about 0.11 per unit of volatility. If you would invest 13,710 in Industrial Select Sector on August 23, 2024 and sell it today you would earn a total of 359.00 from holding Industrial Select Sector or generate 2.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Technology Select Sector vs. Industrial Select Sector
Performance |
| Timeline |
| Technology Select Sector |
| Industrial Select Sector |
Technology Select and Industrial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Technology Select and Industrial Select
The main advantage of trading using opposite Technology Select and Industrial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Technology Select position performs unexpectedly, Industrial 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 Industrial Select will offset losses from the drop in Industrial 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 |
| Industrial Select vs. Materials Select Sector | Industrial Select vs. Consumer Discretionary Select | Industrial Select vs. Consumer Staples Select | Industrial 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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