Correlation Between Select Sector and VanEck Vectors

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

Diversification Opportunities for Select Sector and VanEck Vectors

-0.65

Correlation Coefficient

Select Sector  VanEck Vectors

Excellent diversification

The 3 months correlation between Select and VanEck is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and VanEck Vectors ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Vectors ETF 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 VanEck Vectors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Vectors ETF has no effect on the direction of Select Sector i.e., Select Sector and VanEck Vectors go up and down completely randomly.

Pair Corralation between Select Sector and VanEck Vectors

Assuming the 90 days trading horizon The Select Sector is expected to generate 1.11 times more return on investment than VanEck Vectors. However, Select Sector is 1.11 times more volatile than VanEck Vectors ETF. It trades about 0.06 of its potential returns per unit of risk. VanEck Vectors ETF is currently generating about 0.04 per unit of risk. If you would invest  261,621  in The Select Sector on October 24, 2024 and sell it today you would earn a total of  225,879  from holding The Select Sector or generate 86.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.87%
Values	Daily Returns

The Select Sector  vs.  VanEck Vectors ETF

Select Sector

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, Select Sector may actually be approaching a critical reversion point that can send shares even higher in February 2025.

VanEck Vectors ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Vectors ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, VanEck Vectors 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 VanEck Vectors

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

The idea behind The Select Sector and VanEck Vectors 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.