Correlation Between Utilities Select and Financial Select
Can any of the company-specific risk be diversified away by investing in both Utilities Select and Financial 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 Utilities Select and Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Utilities Select Sector and Financial Select Sector, you can compare the effects of market volatilities on Utilities Select and Financial 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 Utilities Select with a short position of Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Utilities Select and Financial Select.
Diversification Opportunities for Utilities Select and Financial Select
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Utilities and Financial is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Select Sector and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and Utilities 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 Utilities Select Sector are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of Utilities Select i.e., Utilities Select and Financial Select go up and down completely randomly.
Pair Corralation between Utilities Select and Financial Select
Considering the 90-day investment horizon Utilities Select Sector is expected to under-perform the Financial Select. But the etf apears to be less risky and, when comparing its historical volatility, Utilities Select Sector is 1.18 times less risky than Financial Select. The etf trades about -0.1 of its potential returns per unit of risk. The Financial Select Sector is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 4,701 in Financial Select Sector on September 26, 2024 and sell it today you would earn a total of 198.00 from holding Financial Select Sector or generate 4.21% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Utilities Select Sector vs. Financial Select Sector
Performance |
Timeline |
Utilities Select Sector |
Financial Select Sector |
Utilities Select and Financial Select Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Utilities Select and Financial Select
The main advantage of trading using opposite Utilities Select and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Utilities Select position performs unexpectedly, Financial 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 Financial Select will offset losses from the drop in Financial Select's long position.Utilities Select vs. Consumer Staples Select | Utilities Select vs. Industrial Select Sector | Utilities Select vs. Materials Select Sector | Utilities Select vs. Health Care Select |
Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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