Correlation Between Materials Select and VanEck Semiconductor

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

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

Diversification Opportunities for Materials Select and VanEck Semiconductor

0.38

Correlation Coefficient

Materials Select  VanEck Semiconductor

Weak diversification

The 3 months correlation between Materials and VanEck is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and VanEck Semiconductor ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Semiconductor ETF and Materials Select 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 Materials Select Sector are associated (or correlated) with VanEck Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Semiconductor ETF has no effect on the direction of Materials Select i.e., Materials Select and VanEck Semiconductor go up and down completely randomly.

Pair Corralation between Materials Select and VanEck Semiconductor

Considering the 90-day investment horizon Materials Select Sector is expected to under-perform the VanEck Semiconductor. But the etf apears to be less risky and, when comparing its historical volatility, Materials Select Sector is 2.18 times less risky than VanEck Semiconductor. The etf trades about -0.26 of its potential returns per unit of risk. The VanEck Semiconductor ETF is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  24,732  in VanEck Semiconductor ETF on September 16, 2024 and sell it today you would earn a total of  217.00  from holding VanEck Semiconductor ETF or generate 0.88% return on investment over 90 days.

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

Materials Select Sector  vs.  VanEck Semiconductor ETF

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 somewhat strong essential indicators, Materials Select is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

VanEck Semiconductor ETF

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Semiconductor ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak primary indicators, VanEck Semiconductor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Materials Select and VanEck Semiconductor

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

The idea behind Materials Select Sector and VanEck Semiconductor ETF 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.