Correlation Between SPDR SP and Materials Select
Can any of the company-specific risk be diversified away by investing in both SPDR SP and Materials Select 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 SP and Materials Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP Oil and Materials Select Sector, you can compare the effects of market volatilities on SPDR SP and Materials Select 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 SP with a short position of Materials Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Materials Select.
Diversification Opportunities for SPDR SP and Materials Select
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between SPDR and Materials is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Oil and Materials Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Select Sector and SPDR SP 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 SP Oil are associated (or correlated) with Materials Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Select Sector has no effect on the direction of SPDR SP i.e., SPDR SP and Materials Select go up and down completely randomly.
Pair Corralation between SPDR SP and Materials Select
Considering the 90-day investment horizon SPDR SP is expected to generate 1.82 times less return on investment than Materials Select. In addition to that, SPDR SP is 1.63 times more volatile than Materials Select Sector. It trades about 0.02 of its total potential returns per unit of risk. Materials Select Sector is currently generating about 0.05 per unit of volatility. If you would invest 8,166 in Materials Select Sector on November 5, 2024 and sell it today you would earn a total of 778.00 from holding Materials Select Sector or generate 9.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.59% |
| Values | Daily Returns |
SPDR SP Oil vs. Materials Select Sector
Performance |
| Timeline |
| SPDR SP Oil |
| Materials Select Sector |
SPDR SP and Materials Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Materials Select
The main advantage of trading using opposite SPDR SP and Materials Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Materials Select 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 Materials Select will offset losses from the drop in Materials Select's long position.| SPDR SP vs. VanEck Oil Services | SPDR SP vs. SPDR SP Metals | SPDR SP vs. Energy Select Sector | SPDR SP vs. SPDR SP Retail |
| Materials Select vs. Industrial Select Sector | Materials Select vs. Consumer Discretionary Select | Materials Select vs. Consumer Staples Select | Materials Select vs. Utilities Select Sector |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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