Correlation Between SPDR SP and Industrial Select
Can any of the company-specific risk be diversified away by investing in both SPDR SP and Industrial 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 SPDR SP and Industrial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 500 and Industrial Select Sector, you can compare the effects of market volatilities on SPDR SP and Industrial 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 SPDR SP with a short position of Industrial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Industrial Select.
Diversification Opportunities for SPDR SP and Industrial Select
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SPDR and Industrial is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Industrial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Select Sector and SPDR SP 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 SPDR SP 500 are associated (or correlated) with Industrial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Select Sector has no effect on the direction of SPDR SP i.e., SPDR SP and Industrial Select go up and down completely randomly.
Pair Corralation between SPDR SP and Industrial Select
Considering the 90-day investment horizon SPDR SP 500 is expected to under-perform the Industrial Select. But the etf apears to be less risky and, when comparing its historical volatility, SPDR SP 500 is 1.04 times less risky than Industrial Select. The etf trades about -0.15 of its potential returns per unit of risk. The Industrial Select Sector is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 12,395 in Industrial Select Sector on January 26, 2024 and sell it today you would lose (186.00) from holding Industrial Select Sector or give up 1.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
SPDR SP 500 vs. Industrial Select Sector
Performance |
| Timeline |
| SPDR SP 500 |
| Industrial Select Sector |
SPDR SP and Industrial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Industrial Select
The main advantage of trading using opposite SPDR SP and Industrial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Industrial 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 Industrial Select will offset losses from the drop in Industrial Select's long position.| SPDR SP vs. SPDR MSCI EAFE | SPDR SP vs. SPDR MSCI Emerging | SPDR SP vs. SPDR Russell 1000 | SPDR SP vs. SPDR Russell 1000 |
| Industrial Select vs. Fidelity MSCI Materials | Industrial Select vs. Fidelity MSCI Financials | Industrial Select vs. Fidelity MSCI Consumer | Industrial Select vs. Fidelity MSCI Consumer |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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