Correlation Between Select Sector and Invesco QQQ

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

Diversification Opportunities for Select Sector and Invesco QQQ

0.97

Correlation Coefficient

Select Sector  Invesco QQQ

Almost no diversification

The 3 months correlation between Select and Invesco is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and Invesco QQQ Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco QQQ Trust 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 Invesco QQQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco QQQ Trust has no effect on the direction of Select Sector i.e., Select Sector and Invesco QQQ go up and down completely randomly.

Pair Corralation between Select Sector and Invesco QQQ

Assuming the 90 days trading horizon Select Sector is expected to generate 1.49 times less return on investment than Invesco QQQ. In addition to that, Select Sector is 1.14 times more volatile than Invesco QQQ Trust. It trades about 0.23 of its total potential returns per unit of risk. Invesco QQQ Trust is currently generating about 0.38 per unit of volatility. If you would invest  1,011,750  in Invesco QQQ Trust on September 18, 2024 and sell it today you would earn a total of  72,850  from holding Invesco QQQ Trust or generate 7.2% return on investment over 90 days.

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

The Select Sector  vs.  Invesco QQQ Trust

Select Sector

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, Select Sector showed solid returns over the last few months and may actually be approaching a breakup point.

Invesco QQQ Trust

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco QQQ Trust are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Invesco QQQ showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Select Sector and Invesco QQQ

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

The idea behind The Select Sector and Invesco QQQ 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.

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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.