Correlation Between VanEck Natural and Materials Select

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

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

Diversification Opportunities for VanEck Natural and Materials Select

0.92

Correlation Coefficient

VanEck Natural  Materials Select

Almost no diversification

The 3 months correlation between VanEck and Materials is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Natural Resources 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 VanEck Natural 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 VanEck Natural Resources 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 VanEck Natural i.e., VanEck Natural and Materials Select go up and down completely randomly.

Pair Corralation between VanEck Natural and Materials Select

Considering the 90-day investment horizon VanEck Natural Resources is expected to generate 1.24 times more return on investment than Materials Select. However, VanEck Natural is 1.24 times more volatile than Materials Select Sector. It trades about -0.36 of its potential returns per unit of risk. Materials Select Sector is currently generating about -0.58 per unit of risk. If you would invest  4,947  in VanEck Natural Resources on September 25, 2024 and sell it today you would lose (372.00) from holding VanEck Natural Resources or give up 7.52% of portfolio value over 90 days.

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

VanEck Natural Resources  vs.  Materials Select Sector

VanEck Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Etf's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the ETF retail investors.

Materials Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Etf's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with VanEck Natural and Materials Select

The main advantage of trading using opposite VanEck Natural and Materials Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Natural 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.

The idea behind VanEck Natural Resources and Materials 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.