Correlation Between SPDR SP and Energy Select

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both SPDR SP and Energy 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 Energy 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 Energy Select Sector, you can compare the effects of market volatilities on SPDR SP and Energy 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 Energy Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Energy Select.

Diversification Opportunities for SPDR SP and Energy Select

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between SPDR and Energy is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Oil and Energy Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy 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 Energy Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Select Sector has no effect on the direction of SPDR SP i.e., SPDR SP and Energy Select go up and down completely randomly.

Pair Corralation between SPDR SP and Energy Select

Considering the 90-day investment horizon SPDR SP Oil is expected to under-perform the Energy Select. In addition to that, SPDR SP is 1.2 times more volatile than Energy Select Sector. It trades about -0.18 of its total potential returns per unit of risk. Energy Select Sector is currently generating about -0.15 per unit of volatility. If you would invest  9,396  in Energy Select Sector on November 18, 2024 and sell it today you would lose (389.00) from holding Energy Select Sector or give up 4.14% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

SPDR SP Oil  vs.  Energy Select Sector

 Performance 
       Timeline  
SPDR SP Oil 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days SPDR SP Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, SPDR SP is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.
Energy Select Sector 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Energy Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Energy Select is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR SP and Energy Select Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SPDR SP and Energy Select

The main advantage of trading using opposite SPDR SP and Energy Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Energy 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 Energy Select will offset losses from the drop in Energy Select's long position.
The idea behind SPDR SP Oil and Energy Select Sector pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

Other Complementary Tools

Watchlist Optimization
Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm
Insider Screener
Find insiders across different sectors to evaluate their impact on performance
Portfolio Anywhere
Track or share privately all of your investments from the convenience of any device
Global Correlations
Find global opportunities by holding instruments from different markets
ETF Categories
List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments