Correlation Between Consumer Discretionary and SPDR FactSet

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

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

Diversification Opportunities for Consumer Discretionary and SPDR FactSet

0.94

Correlation Coefficient

Consumer Discretionary  SPDR FactSet

Almost no diversification

The 3 months correlation between Consumer and SPDR is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and SPDR FactSet Innovative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR FactSet Innovative and Consumer Discretionary 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 Discretionary Select are associated (or correlated) with SPDR FactSet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR FactSet Innovative has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and SPDR FactSet go up and down completely randomly.

Pair Corralation between Consumer Discretionary and SPDR FactSet

Considering the 90-day investment horizon Consumer Discretionary Select is expected to generate 0.88 times more return on investment than SPDR FactSet. However, Consumer Discretionary Select is 1.13 times less risky than SPDR FactSet. It trades about 0.15 of its potential returns per unit of risk. SPDR FactSet Innovative is currently generating about 0.12 per unit of risk. If you would invest  18,230  in Consumer Discretionary Select on September 28, 2024 and sell it today you would earn a total of  5,130  from holding Consumer Discretionary Select or generate 28.14% return on investment over 90 days.

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

Consumer Discretionary Select  vs.  SPDR FactSet Innovative

Consumer Discretionary

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Select are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Consumer Discretionary showed solid returns over the last few months and may actually be approaching a breakup point.

SPDR FactSet Innovative

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR FactSet Innovative are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, SPDR FactSet disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consumer Discretionary and SPDR FactSet

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

The idea behind Consumer Discretionary Select and SPDR FactSet Innovative 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..