Correlation Between SPDR Series and Select Sector
Can any of the company-specific risk be diversified away by investing in both SPDR Series and Select Sector 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 SPDR Series and Select Sector into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR Series Trust and The Select Sector, you can compare the effects of market volatilities on SPDR Series and Select Sector 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 SPDR Series with a short position of Select Sector. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Series and Select Sector.
Diversification Opportunities for SPDR Series and Select Sector
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between SPDR and Select is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Series Trust and The Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Sector and SPDR Series 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 SPDR Series Trust are associated (or correlated) with Select Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Sector has no effect on the direction of SPDR Series i.e., SPDR Series and Select Sector go up and down completely randomly.
Pair Corralation between SPDR Series and Select Sector
Assuming the 90 days trading horizon SPDR Series Trust is expected to generate 0.91 times more return on investment than Select Sector. However, SPDR Series Trust is 1.1 times less risky than Select Sector. It trades about 0.19 of its potential returns per unit of risk. The Select Sector is currently generating about 0.07 per unit of risk. 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 |
SPDR Series Trust vs. The Select Sector
Performance |
| Timeline |
| SPDR Series Trust |
| Select Sector |
SPDR Series and Select Sector Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR Series and Select Sector
The main advantage of trading using opposite SPDR Series and Select Sector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Series position performs unexpectedly, Select Sector 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 Select Sector will offset losses from the drop in Select Sector's long position.| SPDR Series vs. SPDR Dow Jones | SPDR Series vs. SPDR Gold Trust | SPDR Series vs. SPDR SP 500 | SPDR Series vs. SPDR SP Regional |
| Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard STAR Funds | Select Sector vs. SPDR SP 500 |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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