Correlation Between Select Sector and SPDR Series
Can any of the company-specific risk be diversified away by investing in both Select Sector and SPDR Series 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 SPDR Series 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 SPDR Series Trust, you can compare the effects of market volatilities on Select Sector and SPDR Series 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 SPDR Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Sector and SPDR Series.
Diversification Opportunities for Select Sector and SPDR Series
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Select and SPDR is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and SPDR Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Series Trust 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 SPDR Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Series Trust has no effect on the direction of Select Sector i.e., Select Sector and SPDR Series go up and down completely randomly.
Pair Corralation between Select Sector and SPDR Series
Assuming the 90 days trading horizon Select Sector is expected to generate 2.31 times less return on investment than SPDR Series. In addition to that, Select Sector is 1.1 times more volatile than SPDR Series Trust. It trades about 0.07 of its total potential returns per unit of risk. SPDR Series Trust is currently generating about 0.19 per unit of volatility. If you would invest 268,800 in SPDR Series Trust on August 24, 2024 and sell it today you would earn a total of 17,200 from holding SPDR Series Trust or generate 6.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
The Select Sector vs. SPDR Series Trust
Performance |
| Timeline |
| Select Sector |
| SPDR Series Trust |
Select Sector and SPDR Series Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Sector and SPDR Series
The main advantage of trading using opposite Select Sector and SPDR Series positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector position performs unexpectedly, SPDR Series 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 SPDR Series will offset losses from the drop in SPDR Series' 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 |
| SPDR Series vs. SPDR Dow Jones | SPDR Series vs. SPDR Gold Trust | SPDR Series vs. SPDR SP 500 | SPDR Series vs. SPDR SP Regional |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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