Correlation Between Consumer Staples and Technology Select
Can any of the company-specific risk be diversified away by investing in both Consumer Staples and Technology 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 Technology 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 Technology Select Sector, you can compare the effects of market volatilities on Consumer Staples and Technology 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 Technology Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Staples and Technology Select.
Diversification Opportunities for Consumer Staples and Technology Select
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Consumer and Technology is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Staples Select and Technology Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology 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 Technology Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Select Sector has no effect on the direction of Consumer Staples i.e., Consumer Staples and Technology Select go up and down completely randomly.
Pair Corralation between Consumer Staples and Technology Select
Considering the 90-day investment horizon Consumer Staples is expected to generate 1.49 times less return on investment than Technology Select. But when comparing it to its historical volatility, Consumer Staples Select is 2.15 times less risky than Technology Select. It trades about 0.11 of its potential returns per unit of risk. Technology Select Sector is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 18,421 in Technology Select Sector on August 27, 2024 and sell it today you would earn a total of 4,939 from holding Technology Select Sector or generate 26.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumer Staples Select vs. Technology Select Sector
Performance |
| Timeline |
| Consumer Staples Select |
| Technology Select Sector |
Consumer Staples and Technology Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Staples and Technology Select
The main advantage of trading using opposite Consumer Staples and Technology Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Staples position performs unexpectedly, Technology 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 Technology Select will offset losses from the drop in Technology 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 |
| Technology Select vs. Invesco DWA Utilities | Technology Select vs. Invesco Dynamic Large | Technology Select vs. Invesco Dynamic Large | Technology Select vs. HUMANA INC |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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