Correlation Between Industrial Select and Procure Space

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

Diversification Opportunities for Industrial Select and Procure Space

0.76

Correlation Coefficient

Industrial Select  Procure Space

Poor diversification

The 3 months correlation between Industrial and Procure is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and Procure Space ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procure Space ETF 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 Procure Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procure Space ETF has no effect on the direction of Industrial Select i.e., Industrial Select and Procure Space go up and down completely randomly.

Pair Corralation between Industrial Select and Procure Space

Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.43 times more return on investment than Procure Space. However, Industrial Select Sector is 2.35 times less risky than Procure Space. It trades about -0.01 of its potential returns per unit of risk. Procure Space ETF is currently generating about -0.02 per unit of risk. If you would invest  13,152  in Industrial Select Sector on December 28, 2024 and sell it today you would lose (130.00) from holding Industrial Select Sector or give up 0.99% of portfolio value over 90 days.

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

Industrial Select Sector  vs.  Procure Space ETF

Industrial Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Industrial Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Procure Space ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Procure Space ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Procure Space is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Industrial Select and Procure Space

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

The idea behind Industrial Select Sector and Procure Space ETF 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.