Correlation Between Consumer Staples and Materials Select
Can any of the company-specific risk be diversified away by investing in both Consumer Staples and Materials 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 Consumer Staples and Materials Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumer Staples Select and Materials Select Sector, you can compare the effects of market volatilities on Consumer Staples and Materials 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 Consumer Staples with a short position of Materials Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Staples and Materials Select.
Diversification Opportunities for Consumer Staples and Materials Select
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Consumer and Materials is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Staples Select and Materials Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Select Sector and Consumer Staples 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 Consumer Staples Select are associated (or correlated) with Materials Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Select Sector has no effect on the direction of Consumer Staples i.e., Consumer Staples and Materials Select go up and down completely randomly.
Pair Corralation between Consumer Staples and Materials Select
Considering the 90-day investment horizon Consumer Staples Select is expected to generate 1.29 times more return on investment than Materials Select. However, Consumer Staples is 1.29 times more volatile than Materials Select Sector. It trades about 0.23 of its potential returns per unit of risk. Materials Select Sector is currently generating about 0.12 per unit of risk. If you would invest 7,724 in Consumer Staples Select on November 18, 2024 and sell it today you would earn a total of 337.00 from holding Consumer Staples Select or generate 4.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumer Staples Select vs. Materials Select Sector
Performance |
| Timeline |
| Consumer Staples Select |
| Materials Select Sector |
Consumer Staples and Materials Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Staples and Materials Select
The main advantage of trading using opposite Consumer Staples and Materials Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Staples position performs unexpectedly, Materials 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 Materials Select will offset losses from the drop in Materials Select's long position.| Consumer Staples vs. Consumer Discretionary Select | Consumer Staples vs. Industrial Select Sector | Consumer Staples vs. Utilities Select Sector | Consumer Staples vs. Materials Select Sector |
| Materials Select vs. Industrial Select Sector | Materials Select vs. Consumer Discretionary Select | Materials Select vs. Consumer Staples Select | Materials Select vs. Utilities 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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