Correlation Between Industrial Select and Ishares Trust

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Can any of the company-specific risk be diversified away by investing in both Industrial Select and Ishares Trust 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 Industrial Select and Ishares Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Industrial Select Sector and Ishares Trust , you can compare the effects of market volatilities on Industrial Select and Ishares Trust 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 Industrial Select with a short position of Ishares Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and Ishares Trust.

Diversification Opportunities for Industrial Select and Ishares Trust

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Industrial and Ishares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and Ishares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ishares Trust and Industrial 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 Industrial Select Sector are associated (or correlated) with Ishares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ishares Trust has no effect on the direction of Industrial Select i.e., Industrial Select and Ishares Trust go up and down completely randomly.

Pair Corralation between Industrial Select and Ishares Trust

Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.57 times more return on investment than Ishares Trust. However, Industrial Select Sector is 1.76 times less risky than Ishares Trust. It trades about 0.01 of its potential returns per unit of risk. Ishares Trust is currently generating about -0.05 per unit of risk. If you would invest  13,285  in Industrial Select Sector on December 27, 2024 and sell it today you would earn a total of  75.00  from holding Industrial Select Sector or generate 0.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Industrial Select Sector  vs.  Ishares Trust

 Performance 
       Timeline  
Industrial Select Sector 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Select Sector are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Industrial Select is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.
Ishares Trust 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Ishares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Ishares Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Industrial Select and Ishares Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Industrial Select and Ishares Trust

The main advantage of trading using opposite Industrial Select and Ishares Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select position performs unexpectedly, Ishares Trust 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 Ishares Trust will offset losses from the drop in Ishares Trust's long position.
The idea behind Industrial Select Sector and Ishares Trust 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.
Check out your portfolio center.
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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