Correlation Between Select Sector and IShares Trust
Can any of the company-specific risk be diversified away by investing in both Select Sector and IShares Trust 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 IShares Trust 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 iShares Trust , you can compare the effects of market volatilities on Select Sector and IShares Trust 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 IShares Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Sector and IShares Trust.
Diversification Opportunities for Select Sector and IShares Trust
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Select and IShares is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 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 IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Select Sector i.e., Select Sector and IShares Trust go up and down completely randomly.
Pair Corralation between Select Sector and IShares Trust
Assuming the 90 days trading horizon Select Sector is expected to generate 1.14 times less return on investment than IShares Trust. But when comparing it to its historical volatility, The Select Sector is 1.63 times less risky than IShares Trust. It trades about 0.18 of its potential returns per unit of risk. iShares Trust is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 209,820 in iShares Trust on November 9, 2024 and sell it today you would earn a total of 10,180 from holding iShares Trust or generate 4.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Select Sector vs. iShares Trust
Performance |
| Timeline |
| Select Sector |
| iShares Trust |
Select Sector and IShares Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Sector and IShares Trust
The main advantage of trading using opposite Select Sector and IShares Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector position performs unexpectedly, IShares Trust 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 IShares Trust will offset losses from the drop in IShares Trust'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 |
| IShares Trust vs. iShares Trust | IShares Trust vs. iShares Trust | IShares Trust vs. iShares Trust | IShares Trust vs. iShares Trust |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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