Correlation Between Financial Select and Vanguard Industrials

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

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

Diversification Opportunities for Financial Select and Vanguard Industrials

0.56

Correlation Coefficient

Financial Select  Vanguard Industrials

Very weak diversification

The 3 months correlation between Financial and Vanguard is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Vanguard Industrials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Industrials and Financial 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 Financial Select Sector are associated (or correlated) with Vanguard Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Industrials has no effect on the direction of Financial Select i.e., Financial Select and Vanguard Industrials go up and down completely randomly.

Pair Corralation between Financial Select and Vanguard Industrials

Considering the 90-day investment horizon Financial Select Sector is expected to generate 1.01 times more return on investment than Vanguard Industrials. However, Financial Select is 1.01 times more volatile than Vanguard Industrials Index. It trades about 0.0 of its potential returns per unit of risk. Vanguard Industrials Index is currently generating about -0.15 per unit of risk. If you would invest  5,112  in Financial Select Sector on November 28, 2024 and sell it today you would lose (16.00) from holding Financial Select Sector or give up 0.31% of portfolio value over 90 days.

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

Financial Select Sector  vs.  Vanguard Industrials Index

Financial Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Financial Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Financial Select is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Vanguard Industrials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Industrials Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with Financial Select and Vanguard Industrials

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

The idea behind Financial Select Sector and Vanguard Industrials 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.