Correlation Between Materials Select and Vanguard Materials

Can any of the company-specific risk be diversified away by investing in both Materials Select and Vanguard Materials 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 Vanguard Materials 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 Vanguard Materials Index, you can compare the effects of market volatilities on Materials Select and Vanguard Materials 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 Vanguard Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and Vanguard Materials.

Diversification Opportunities for Materials Select and Vanguard Materials

0.96

Correlation Coefficient

Materials Select  Vanguard Materials

Almost no diversification

The 3 months correlation between Materials and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index 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 Vanguard Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Materials Select i.e., Materials Select and Vanguard Materials go up and down completely randomly.

Pair Corralation between Materials Select and Vanguard Materials

Considering the 90-day investment horizon Materials Select Sector is expected to generate 0.97 times more return on investment than Vanguard Materials. However, Materials Select Sector is 1.04 times less risky than Vanguard Materials. It trades about -0.52 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about -0.53 per unit of risk. If you would invest  9,409  in Materials Select Sector on September 23, 2024 and sell it today you would lose (851.00) from holding Materials Select Sector or give up 9.04% of portfolio value over 90 days.

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

Materials Select Sector  vs.  Vanguard Materials Index

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 inconsistent 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.

Vanguard Materials Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Materials Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Materials Select and Vanguard Materials

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

The idea behind Materials Select Sector and Vanguard Materials Index 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.