Correlation Between Consumer Staples and Industrial Select
Can any of the company-specific risk be diversified away by investing in both Consumer Staples 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 Consumer Staples and Industrial 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 Industrial Select Sector, you can compare the effects of market volatilities on Consumer Staples 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 Consumer Staples with a short position of Industrial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Staples and Industrial Select.
Diversification Opportunities for Consumer Staples and Industrial Select
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Consumer and Industrial is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Staples Select 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 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 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 Consumer Staples i.e., Consumer Staples and Industrial Select go up and down completely randomly.
Pair Corralation between Consumer Staples and Industrial Select
Considering the 90-day investment horizon Consumer Staples Select is expected to under-perform the Industrial Select. But the etf apears to be less risky and, when comparing its historical volatility, Consumer Staples Select is 1.25 times less risky than Industrial Select. The etf trades about -0.2 of its potential returns per unit of risk. The Industrial Select Sector is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 13,161 in Industrial Select Sector on October 20, 2024 and sell it today you would earn a total of 614.00 from holding Industrial Select Sector or generate 4.67% 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. Industrial Select Sector
Performance |
| Timeline |
| Consumer Staples Select |
| Industrial Select Sector |
Consumer Staples and Industrial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Staples and Industrial Select
The main advantage of trading using opposite Consumer Staples and Industrial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Staples 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.| Consumer Staples vs. Consumer Discretionary Select | Consumer Staples vs. Industrial Select Sector | Consumer Staples vs. Utilities Select Sector | Consumer Staples vs. Materials Select Sector |
| 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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