Correlation Between Select Sector and Freeport McMoRan
Can any of the company-specific risk be diversified away by investing in both Select Sector and Freeport McMoRan 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 Freeport McMoRan 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 Freeport McMoRan, you can compare the effects of market volatilities on Select Sector and Freeport McMoRan 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 Freeport McMoRan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Sector and Freeport McMoRan.
Diversification Opportunities for Select Sector and Freeport McMoRan
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Select and Freeport is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan 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 Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of Select Sector i.e., Select Sector and Freeport McMoRan go up and down completely randomly.
Pair Corralation between Select Sector and Freeport McMoRan
Assuming the 90 days trading horizon Select Sector is expected to generate 1.15 times less return on investment than Freeport McMoRan. But when comparing it to its historical volatility, The Select Sector is 1.51 times less risky than Freeport McMoRan. It trades about 0.03 of its potential returns per unit of risk. Freeport McMoRan is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 73,962 in Freeport McMoRan on September 3, 2024 and sell it today you would earn a total of 13,881 from holding Freeport McMoRan or generate 18.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Select Sector vs. Freeport McMoRan
Performance |
| Timeline |
| Select Sector |
| Freeport McMoRan |
Select Sector and Freeport McMoRan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Sector and Freeport McMoRan
The main advantage of trading using opposite Select Sector and Freeport McMoRan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector position performs unexpectedly, Freeport McMoRan 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 Freeport McMoRan will offset losses from the drop in Freeport McMoRan's long position.| Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard STAR Funds | Select Sector vs. SPDR SP 500 |
| Freeport McMoRan vs. Applied Materials | Freeport McMoRan vs. Verizon Communications | Freeport McMoRan vs. Grupo Hotelero Santa | Freeport McMoRan vs. Ameriprise Financial |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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