Correlation Between Select Sector and Vanguard Bond

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

Diversification Opportunities for Select Sector and Vanguard Bond

-0.04

Correlation Coefficient

Select Sector  Vanguard Bond

Good diversification

The 3 months correlation between Select and Vanguard is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and Vanguard Bond Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Bond Index 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 Vanguard Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Bond Index has no effect on the direction of Select Sector i.e., Select Sector and Vanguard Bond go up and down completely randomly.

Pair Corralation between Select Sector and Vanguard Bond

Assuming the 90 days trading horizon The Select Sector is expected to under-perform the Vanguard Bond. In addition to that, Select Sector is 1.13 times more volatile than Vanguard Bond Index. It trades about -0.16 of its total potential returns per unit of risk. Vanguard Bond Index is currently generating about -0.01 per unit of volatility. If you would invest  143,785  in Vanguard Bond Index on December 28, 2024 and sell it today you would lose (1,285) from holding Vanguard Bond Index or give up 0.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	75.41%
Values	Daily Returns

The Select Sector  vs.  Vanguard Bond Index

Select Sector

Risk-Adjusted Performance

Very Weak

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 weak performance in the last few months, the Etf's forward-looking signals remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Vanguard Bond Index

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Select Sector and Vanguard Bond

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

The idea behind The Select Sector and Vanguard Bond 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.