Correlation Between Consumer Staples and Utilities Select

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

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

Diversification Opportunities for Consumer Staples and Utilities Select

0.57

Correlation Coefficient

Consumer Staples  Utilities Select

Very weak diversification

The 3 months correlation between Consumer and Utilities is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Staples Select and Utilities Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Select Sector and Consumer Staples 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 Consumer Staples Select are associated (or correlated) with Utilities Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Select Sector has no effect on the direction of Consumer Staples i.e., Consumer Staples and Utilities Select go up and down completely randomly.

Pair Corralation between Consumer Staples and Utilities Select

Considering the 90-day investment horizon Consumer Staples Select is expected to generate 0.75 times more return on investment than Utilities Select. However, Consumer Staples Select is 1.34 times less risky than Utilities Select. It trades about 0.03 of its potential returns per unit of risk. Utilities Select Sector is currently generating about -0.05 per unit of risk. If you would invest  8,259  in Consumer Staples Select on November 28, 2024 and sell it today you would earn a total of  101.00  from holding Consumer Staples Select or generate 1.22% return on investment over 90 days.

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

Consumer Staples Select  vs.  Utilities Select Sector

Consumer Staples Select

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Staples Select are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable essential indicators, Consumer Staples is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Utilities Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Utilities Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Utilities Select 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 Consumer Staples and Utilities Select

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

The idea behind Consumer Staples Select and Utilities Select Sector 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.