Correlation Between Invesco QQQ and Select Sector

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

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

Diversification Opportunities for Invesco QQQ and Select Sector

0.62

Correlation Coefficient

Invesco QQQ  Select Sector

Poor diversification

The 3 months correlation between Invesco and Select is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Invesco QQQ Trust and The Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Sector and Invesco QQQ 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 Invesco QQQ Trust are associated (or correlated) with Select Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Sector has no effect on the direction of Invesco QQQ i.e., Invesco QQQ and Select Sector go up and down completely randomly.

Pair Corralation between Invesco QQQ and Select Sector

Assuming the 90 days trading horizon Invesco QQQ Trust is expected to generate 0.77 times more return on investment than Select Sector. However, Invesco QQQ Trust is 1.3 times less risky than Select Sector. It trades about 0.24 of its potential returns per unit of risk. The Select Sector is currently generating about 0.05 per unit of risk. If you would invest  901,838  in Invesco QQQ Trust on September 16, 2024 and sell it today you would earn a total of  166,062  from holding Invesco QQQ Trust or generate 18.41% return on investment over 90 days.

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

Invesco QQQ Trust  vs.  The Select Sector

Invesco QQQ Trust

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco QQQ Trust are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Invesco QQQ showed solid returns over the last few months and may actually be approaching a breakup point.

Select Sector

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Select Sector is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco QQQ and Select Sector

The main advantage of trading using opposite Invesco QQQ and Select Sector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco QQQ position performs unexpectedly, Select Sector 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 Select Sector will offset losses from the drop in Select Sector's long position.

The idea behind Invesco QQQ Trust and The 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.