Correlation Between Financial Select and Vulcan Value

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

Diversification Opportunities for Financial Select and Vulcan Value

-0.5

Correlation Coefficient

Financial Select  Vulcan Value

Very good diversification

The 3 months correlation between Financial and Vulcan is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Vulcan Value Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Value Partners 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 Vulcan Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Value Partners has no effect on the direction of Financial Select i.e., Financial Select and Vulcan Value go up and down completely randomly.

Pair Corralation between Financial Select and Vulcan Value

Considering the 90-day investment horizon Financial Select Sector is expected to under-perform the Vulcan Value. But the etf apears to be less risky and, when comparing its historical volatility, Financial Select Sector is 1.23 times less risky than Vulcan Value. The etf trades about -0.05 of its potential returns per unit of risk. The Vulcan Value Partners is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,247  in Vulcan Value Partners on September 16, 2024 and sell it today you would earn a total of  4.00  from holding Vulcan Value Partners or generate 0.32% return on investment over 90 days.

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

Financial Select Sector  vs.  Vulcan Value Partners

Financial Select Sector

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent essential indicators, Financial Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vulcan Value Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vulcan Value Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vulcan Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financial Select and Vulcan Value

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

The idea behind Financial Select Sector and Vulcan Value Partners 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.