Correlation Between Select Sector and ETF Diario

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

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

Diversification Opportunities for Select Sector and ETF Diario

0.13

Correlation Coefficient

Select Sector  ETF Diario

Average diversification

The 3 months correlation between Select and ETF is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and ETF Diario Inverso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Diario Inverso and Select Sector 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 The Select Sector are associated (or correlated) with ETF Diario. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Diario Inverso has no effect on the direction of Select Sector i.e., Select Sector and ETF Diario go up and down completely randomly.

Pair Corralation between Select Sector and ETF Diario

Assuming the 90 days trading horizon Select Sector is expected to generate 1.11 times less return on investment than ETF Diario. In addition to that, Select Sector is 1.54 times more volatile than ETF Diario Inverso. It trades about 0.05 of its total potential returns per unit of risk. ETF Diario Inverso is currently generating about 0.08 per unit of volatility. If you would invest  1,215  in ETF Diario Inverso on October 14, 2024 and sell it today you would earn a total of  47.00  from holding ETF Diario Inverso or generate 3.87% return on investment over 90 days.

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

The Select Sector  vs.  ETF Diario Inverso

Select Sector

Risk-Adjusted Performance

0 of 100

Insignificant

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

ETF Diario Inverso

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ETF Diario Inverso are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, ETF Diario is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Select Sector and ETF Diario

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

The idea behind The Select Sector and ETF Diario Inverso 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.