Correlation Between Energy Select and EA Series

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

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

Diversification Opportunities for Energy Select and EA Series

0.99

Correlation Coefficient

Energy Select  EA Series

No risk reduction

The 3 months correlation between Energy and DRLL is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and EA Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EA Series Trust and Energy 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 Energy Select Sector are associated (or correlated) with EA Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EA Series Trust has no effect on the direction of Energy Select i.e., Energy Select and EA Series go up and down completely randomly.

Pair Corralation between Energy Select and EA Series

Considering the 90-day investment horizon Energy Select Sector is expected to under-perform the EA Series. But the etf apears to be less risky and, when comparing its historical volatility, Energy Select Sector is 1.06 times less risky than EA Series. The etf trades about -0.05 of its potential returns per unit of risk. The EA Series Trust is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,044  in EA Series Trust on October 22, 2024 and sell it today you would lose (61.80) from holding EA Series Trust or give up 2.03% of portfolio value over 90 days.

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

Energy Select Sector  vs.  EA Series Trust

Energy Select Sector

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Select Sector are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Energy Select is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

EA Series Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EA Series Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, EA Series is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Energy Select and EA Series

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

The idea behind Energy Select Sector and EA Series Trust 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.