Correlation Between Energy Select and United States

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

Diversification Opportunities for Energy Select and United States

0.45

Correlation Coefficient

Energy Select  United States

Very weak diversification

The 3 months correlation between Energy and United is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and United States Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Oil 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Oil has no effect on the direction of Energy Select i.e., Energy Select and United States go up and down completely randomly.

Pair Corralation between Energy Select and United States

Considering the 90-day investment horizon Energy Select Sector is expected to generate 0.87 times more return on investment than United States. However, Energy Select Sector is 1.15 times less risky than United States. It trades about 0.14 of its potential returns per unit of risk. United States Oil is currently generating about 0.01 per unit of risk. If you would invest  8,390  in Energy Select Sector on December 28, 2024 and sell it today you would earn a total of  897.00  from holding Energy Select Sector or generate 10.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Energy Select Sector  vs.  United States Oil

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.

United States Oil

Risk-Adjusted Performance

Weak

Over the last 90 days United States Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, United States is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Energy Select and United States

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

The idea behind Energy Select Sector and United States Oil 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.