Correlation Between Financial Select and SPDR FactSet

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

Diversification Opportunities for Financial Select and SPDR FactSet

0.84

Correlation Coefficient

Financial Select  SPDR FactSet

Very poor diversification

The 3 months correlation between Financial and SPDR is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and SPDR FactSet Innovative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR FactSet Innovative 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 SPDR FactSet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR FactSet Innovative has no effect on the direction of Financial Select i.e., Financial Select and SPDR FactSet go up and down completely randomly.

Pair Corralation between Financial Select and SPDR FactSet

Considering the 90-day investment horizon Financial Select is expected to generate 4.34 times less return on investment than SPDR FactSet. But when comparing it to its historical volatility, Financial Select Sector is 1.37 times less risky than SPDR FactSet. It trades about 0.03 of its potential returns per unit of risk. SPDR FactSet Innovative is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  15,930  in SPDR FactSet Innovative on October 15, 2024 and sell it today you would earn a total of  1,640  from holding SPDR FactSet Innovative or generate 10.3% return on investment over 90 days.

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

Financial Select Sector  vs.  SPDR FactSet Innovative

Financial Select Sector

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

SPDR FactSet Innovative

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR FactSet Innovative are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, SPDR FactSet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Financial Select and SPDR FactSet

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

The idea behind Financial Select Sector and SPDR FactSet Innovative 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.