Correlation Between Energy Select and Technology Select

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

Diversification Opportunities for Energy Select and Technology Select

-0.11

Correlation Coefficient

Energy Select  Technology Select

Good diversification

The 3 months correlation between Energy and Technology is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and Technology Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Select Sector 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 Technology Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Select Sector has no effect on the direction of Energy Select i.e., Energy Select and Technology Select go up and down completely randomly.

Pair Corralation between Energy Select and Technology Select

Considering the 90-day investment horizon Energy Select Sector is expected to generate 0.89 times more return on investment than Technology Select. However, Energy Select Sector is 1.12 times less risky than Technology Select. It trades about 0.08 of its potential returns per unit of risk. Technology Select Sector is currently generating about 0.02 per unit of risk. If you would invest  8,932  in Energy Select Sector on October 20, 2024 and sell it today you would earn a total of  464.00  from holding Energy Select Sector or generate 5.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Energy Select Sector  vs.  Technology Select Sector

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.

Technology Select Sector

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Energy Select and Technology Select

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

The idea behind Energy Select Sector and Technology Select Sector 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.