Correlation Between Technology Select and IShares Cybersecurity

Can any of the company-specific risk be diversified away by investing in both Technology Select and IShares Cybersecurity 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 Technology Select and IShares Cybersecurity into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Technology Select Sector and iShares Cybersecurity and, you can compare the effects of market volatilities on Technology Select and IShares Cybersecurity 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 Technology Select with a short position of IShares Cybersecurity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology Select and IShares Cybersecurity.

Diversification Opportunities for Technology Select and IShares Cybersecurity

0.56

Correlation Coefficient

Technology Select  IShares Cybersecurity

Very weak diversification

The 3 months correlation between Technology and IShares is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and iShares Cybersecurity and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Cybersecurity and and Technology 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 Technology Select Sector are associated (or correlated) with IShares Cybersecurity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Cybersecurity and has no effect on the direction of Technology Select i.e., Technology Select and IShares Cybersecurity go up and down completely randomly.

Pair Corralation between Technology Select and IShares Cybersecurity

Considering the 90-day investment horizon Technology Select Sector is expected to generate 1.15 times more return on investment than IShares Cybersecurity. However, Technology Select is 1.15 times more volatile than iShares Cybersecurity and. It trades about -0.07 of its potential returns per unit of risk. iShares Cybersecurity and is currently generating about -0.15 per unit of risk. If you would invest  23,081  in Technology Select Sector on December 2, 2024 and sell it today you would lose (528.00) from holding Technology Select Sector or give up 2.29% of portfolio value over 90 days.

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

Technology Select Sector  vs.  iShares Cybersecurity and

Technology Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Technology Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

iShares Cybersecurity and

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Cybersecurity and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, IShares Cybersecurity is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Technology Select and IShares Cybersecurity

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

The idea behind Technology Select Sector and iShares Cybersecurity and 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..