Correlation Between VanEck Biotech and Energy Select

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Can any of the company-specific risk be diversified away by investing in both VanEck Biotech and Energy 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 VanEck Biotech and Energy Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VanEck Biotech ETF and Energy Select Sector, you can compare the effects of market volatilities on VanEck Biotech and Energy 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 VanEck Biotech with a short position of Energy Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck Biotech and Energy Select.

Diversification Opportunities for VanEck Biotech and Energy Select

-0.25
  Correlation Coefficient

Very good diversification

The 3 months correlation between VanEck and Energy is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Biotech ETF and Energy Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Select Sector and VanEck Biotech 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 VanEck Biotech ETF are associated (or correlated) with Energy Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Select Sector has no effect on the direction of VanEck Biotech i.e., VanEck Biotech and Energy Select go up and down completely randomly.

Pair Corralation between VanEck Biotech and Energy Select

Considering the 90-day investment horizon VanEck Biotech is expected to generate 4.49 times less return on investment than Energy Select. In addition to that, VanEck Biotech is 1.05 times more volatile than Energy Select Sector. It trades about 0.14 of its total potential returns per unit of risk. Energy Select Sector is currently generating about 0.68 per unit of volatility. If you would invest  8,545  in Energy Select Sector on December 31, 2023 and sell it today you would earn a total of  896.00  from holding Energy Select Sector or generate 10.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

VanEck Biotech ETF  vs.  Energy Select Sector

 Performance 
       Timeline  
VanEck Biotech ETF 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days VanEck Biotech ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, VanEck Biotech is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.
Energy Select Sector 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Energy Select Sector are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, Energy Select may actually be approaching a critical reversion point that can send shares even higher in April 2024.

VanEck Biotech and Energy Select Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with VanEck Biotech and Energy Select

The main advantage of trading using opposite VanEck Biotech and Energy Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Biotech position performs unexpectedly, Energy 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 Energy Select will offset losses from the drop in Energy Select's long position.
The idea behind VanEck Biotech ETF and Energy 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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