Correlation Between Energy Select and IShares Global

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

Diversification Opportunities for Energy Select and IShares Global

0.97

Correlation Coefficient

Energy Select  IShares Global

Almost no diversification

The 3 months correlation between Energy and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and iShares Global Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Energy 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 IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Energy has no effect on the direction of Energy Select i.e., Energy Select and IShares Global go up and down completely randomly.

Pair Corralation between Energy Select and IShares Global

Considering the 90-day investment horizon Energy Select is expected to generate 1.04 times less return on investment than IShares Global. In addition to that, Energy Select is 1.25 times more volatile than iShares Global Energy. It trades about 0.13 of its total potential returns per unit of risk. iShares Global Energy is currently generating about 0.17 per unit of volatility. If you would invest  3,769  in iShares Global Energy on December 28, 2024 and sell it today you would earn a total of  407.00  from holding iShares Global Energy or generate 10.8% return on investment over 90 days.

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

Energy Select Sector  vs.  iShares Global Energy

Energy Select Sector

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Select Sector are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Energy Select may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares Global Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, IShares Global may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Energy Select and IShares Global

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

The idea behind Energy Select Sector and iShares Global Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.