Correlation Between SPDR SP and Energy Select
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 Retail 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
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SPDR and Energy is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Retail 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 Retail 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 is expected to generate 1.16 times less return on investment than Energy Select. In addition to that, SPDR SP is 1.05 times more volatile than Energy Select Sector. It trades about 0.15 of its total potential returns per unit of risk. Energy Select Sector is currently generating about 0.18 per unit of volatility. If you would invest 8,719 in Energy Select Sector on August 28, 2024 and sell it today you would earn a total of 816.00 from holding Energy Select Sector or generate 9.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP Retail vs. Energy Select Sector
Performance |
| Timeline |
| SPDR SP Retail |
| Energy Select Sector |
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.| SPDR SP vs. SPDR SP Homebuilders | SPDR SP vs. Consumer Discretionary Select | SPDR SP vs. SPDR SP Metals | SPDR SP vs. Industrial Select Sector |
| Energy Select vs. Financial Select Sector | Energy Select vs. Health Care Select | Energy Select vs. Technology Select Sector | Energy 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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