Correlation Between EA Series and Energy Select

Can any of the company-specific risk be diversified away by investing in both EA Series 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 EA Series and Energy Select into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EA Series Trust and Energy Select Sector, you can compare the effects of market volatilities on EA Series 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 EA Series with a short position of Energy Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of EA Series and Energy Select.

Diversification Opportunities for EA Series and Energy Select

0.99

Correlation Coefficient

EA Series  Energy Select

No risk reduction

The 3 months correlation between DRLL and Energy is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding EA Series Trust 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 EA 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 EA Series Trust 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 EA Series i.e., EA Series and Energy Select go up and down completely randomly.

Pair Corralation between EA Series and Energy Select

Given the investment horizon of 90 days EA Series Trust is expected to generate 1.1 times more return on investment than Energy Select. However, EA Series is 1.1 times more volatile than Energy Select Sector. It trades about -0.24 of its potential returns per unit of risk. Energy Select Sector is currently generating about -0.3 per unit of risk. If you would invest  2,992  in EA Series Trust on September 16, 2024 and sell it today you would lose (153.00) from holding EA Series Trust or give up 5.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

EA Series Trust  vs.  Energy Select Sector

EA Series Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EA Series Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, EA Series is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Energy Select Sector

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Select Sector are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with EA Series and Energy Select

The main advantage of trading using opposite EA Series and Energy Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EA Series 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 EA Series Trust 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.