Correlation Between Select Sector and Barclays PLC
Can any of the company-specific risk be diversified away by investing in both Select Sector and Barclays PLC 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 Select Sector and Barclays PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Select Sector and Barclays PLC, you can compare the effects of market volatilities on Select Sector and Barclays PLC 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 Select Sector with a short position of Barclays PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Sector and Barclays PLC.
Diversification Opportunities for Select Sector and Barclays PLC
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Select and Barclays is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and Barclays PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barclays PLC and Select Sector 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 The Select Sector are associated (or correlated) with Barclays PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barclays PLC has no effect on the direction of Select Sector i.e., Select Sector and Barclays PLC go up and down completely randomly.
Pair Corralation between Select Sector and Barclays PLC
Assuming the 90 days trading horizon Select Sector is expected to generate 3.45 times less return on investment than Barclays PLC. But when comparing it to its historical volatility, The Select Sector is 1.02 times less risky than Barclays PLC. It trades about 0.05 of its potential returns per unit of risk. Barclays PLC is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 22,010 in Barclays PLC on September 12, 2024 and sell it today you would earn a total of 4,990 from holding Barclays PLC or generate 22.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Select Sector vs. Barclays PLC
Performance |
| Timeline |
| Select Sector |
| Barclays PLC |
Select Sector and Barclays PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Sector and Barclays PLC
The main advantage of trading using opposite Select Sector and Barclays PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector position performs unexpectedly, Barclays PLC 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 Barclays PLC will offset losses from the drop in Barclays PLC's long position.| Select Sector vs. The Select Sector | Select Sector vs. The Select Sector | Select Sector vs. The Select Sector | Select Sector vs. The Select Sector |
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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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