Correlation Between VanEck Oil and Energy Select

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

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

Diversification Opportunities for VanEck Oil and Energy Select

0.39

Correlation Coefficient

VanEck Oil  Energy Select

Weak diversification

The 3 months correlation between VanEck and Energy is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Oil Services 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 VanEck Oil 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 Oil Services 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 VanEck Oil i.e., VanEck Oil and Energy Select go up and down completely randomly.

Pair Corralation between VanEck Oil and Energy Select

Considering the 90-day investment horizon VanEck Oil Services is expected to under-perform the Energy Select. In addition to that, VanEck Oil is 1.27 times more volatile than Energy Select Sector. It trades about 0.0 of its total potential returns per unit of risk. Energy Select Sector is currently generating about 0.14 per unit of volatility. If you would invest  8,390  in Energy Select Sector on December 28, 2024 and sell it today you would earn a total of  897.00  from holding Energy Select Sector or generate 10.69% return on investment over 90 days.

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

VanEck Oil Services  vs.  Energy Select Sector

VanEck Oil Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Oil Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, VanEck Oil is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Energy Select Sector

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Select Sector are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Energy Select may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with VanEck Oil and Energy Select

The main advantage of trading using opposite VanEck Oil and Energy Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Oil 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 VanEck Oil Services 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.