Correlation Between Consumer Discretionary and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Consumer Discretionary and SPDR SP 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 Discretionary and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumer Discretionary Select and SPDR SP Metals, you can compare the effects of market volatilities on Consumer Discretionary and SPDR SP 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 Discretionary with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Discretionary and SPDR SP.
Diversification Opportunities for Consumer Discretionary and SPDR SP
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Consumer and SPDR is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and SPDR SP Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Metals and Consumer Discretionary 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 Discretionary Select are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Metals has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and SPDR SP go up and down completely randomly.
Pair Corralation between Consumer Discretionary and SPDR SP
Considering the 90-day investment horizon Consumer Discretionary Select is expected to generate 0.7 times more return on investment than SPDR SP. However, Consumer Discretionary Select is 1.43 times less risky than SPDR SP. It trades about 0.15 of its potential returns per unit of risk. SPDR SP Metals is currently generating about 0.04 per unit of risk. If you would invest 17,515 in Consumer Discretionary Select on August 30, 2024 and sell it today you would earn a total of 4,489 from holding Consumer Discretionary Select or generate 25.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumer Discretionary Select vs. SPDR SP Metals
Performance |
| Timeline |
| Consumer Discretionary |
| SPDR SP Metals |
Consumer Discretionary and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Discretionary and SPDR SP
The main advantage of trading using opposite Consumer Discretionary and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Discretionary position performs unexpectedly, SPDR SP 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 SP will offset losses from the drop in SPDR SP's long position.| Consumer Discretionary vs. Consumer Staples Select | Consumer Discretionary vs. Industrial Select Sector | Consumer Discretionary vs. Materials Select Sector | Consumer Discretionary vs. Health Care Select |
| SPDR SP vs. Materials Select Sector | SPDR SP vs. SPDR SP Oil | SPDR SP vs. SPDR SP Retail | SPDR SP vs. SPDR SP Homebuilders |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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