Correlation Between Listed Funds and Financial Select

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

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

Diversification Opportunities for Listed Funds and Financial Select

0.17

Correlation Coefficient

Listed Funds  Financial Select

Average diversification

The 3 months correlation between Listed and Financial is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Listed Funds Trust and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and Listed Funds 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 Listed Funds Trust are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of Listed Funds i.e., Listed Funds and Financial Select go up and down completely randomly.

Pair Corralation between Listed Funds and Financial Select

Given the investment horizon of 90 days Listed Funds is expected to generate 1.57 times less return on investment than Financial Select. But when comparing it to its historical volatility, Listed Funds Trust is 6.35 times less risky than Financial Select. It trades about 0.18 of its potential returns per unit of risk. Financial Select Sector is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,842  in Financial Select Sector on December 21, 2024 and sell it today you would earn a total of  122.00  from holding Financial Select Sector or generate 2.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Listed Funds Trust  vs.  Financial Select Sector

Listed Funds Trust

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Listed Funds Trust are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Listed Funds is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Financial Select Sector

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Financial Select is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Listed Funds and Financial Select

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

The idea behind Listed Funds Trust and Financial 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.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.