Correlation Between Select Sector and TotalEnergies

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

Diversification Opportunities for Select Sector and TotalEnergies

0.47

Correlation Coefficient

Select Sector  TotalEnergies

Very weak diversification

The 3 months correlation between Select and TotalEnergies is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and TotalEnergies SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies SE 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 TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies SE has no effect on the direction of Select Sector i.e., Select Sector and TotalEnergies go up and down completely randomly.

Pair Corralation between Select Sector and TotalEnergies

Assuming the 90 days trading horizon Select Sector is expected to generate 3.29 times less return on investment than TotalEnergies. In addition to that, Select Sector is 1.64 times more volatile than TotalEnergies SE. It trades about 0.04 of its total potential returns per unit of risk. TotalEnergies SE is currently generating about 0.22 per unit of volatility. If you would invest  108,867  in TotalEnergies SE on December 24, 2024 and sell it today you would earn a total of  19,727  from holding TotalEnergies SE or generate 18.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

The Select Sector  vs.  TotalEnergies SE

Select Sector

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Select Sector is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

TotalEnergies SE

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies SE are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, TotalEnergies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Select Sector and TotalEnergies

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

The idea behind The Select Sector and TotalEnergies SE 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.