Correlation Between Industrial Select and Vanguard Industrials

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

Diversification Opportunities for Industrial Select and Vanguard Industrials

0.96

Correlation Coefficient

Industrial Select  Vanguard Industrials

Almost no diversification

The 3 months correlation between Industrial and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and Vanguard Industrials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Industrials 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 Vanguard Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Industrials has no effect on the direction of Industrial Select i.e., Industrial Select and Vanguard Industrials go up and down completely randomly.

Pair Corralation between Industrial Select and Vanguard Industrials

Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.94 times more return on investment than Vanguard Industrials. However, Industrial Select Sector is 1.06 times less risky than Vanguard Industrials. It trades about -0.01 of its potential returns per unit of risk. Vanguard Industrials Index is currently generating about -0.04 per unit of risk. If you would invest  13,152  in Industrial Select Sector on December 30, 2024 and sell it today you would lose (137.00) from holding Industrial Select Sector or give up 1.04% of portfolio value over 90 days.

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

Industrial Select Sector  vs.  Vanguard Industrials Index

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.

Vanguard Industrials

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Industrial Select and Vanguard Industrials

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

The idea behind Industrial Select Sector and Vanguard Industrials Index 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 Transaction History module to view history of all your transactions and understand their impact on performance.