Correlation Between Materials Select and VanEck Biotech
Can any of the company-specific risk be diversified away by investing in both Materials Select and VanEck Biotech 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 Materials Select and VanEck Biotech into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Materials Select Sector and VanEck Biotech ETF, you can compare the effects of market volatilities on Materials Select and VanEck Biotech 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 Materials Select with a short position of VanEck Biotech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and VanEck Biotech.
Diversification Opportunities for Materials Select and VanEck Biotech
-0.24 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Materials and VanEck is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and VanEck Biotech ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Biotech ETF and Materials 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 Materials Select Sector are associated (or correlated) with VanEck Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Biotech ETF has no effect on the direction of Materials Select i.e., Materials Select and VanEck Biotech go up and down completely randomly.
Pair Corralation between Materials Select and VanEck Biotech
Considering the 90-day investment horizon Materials Select is expected to generate 1.18 times less return on investment than VanEck Biotech. But when comparing it to its historical volatility, Materials Select Sector is 1.04 times less risky than VanEck Biotech. It trades about 0.02 of its potential returns per unit of risk. VanEck Biotech ETF is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 14,131 in VanEck Biotech ETF on January 26, 2024 and sell it today you would earn a total of 1,602 from holding VanEck Biotech ETF or generate 11.34% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 99.8% |
Values | Daily Returns |
Materials Select Sector vs. VanEck Biotech ETF
Performance |
Timeline |
Materials Select Sector |
VanEck Biotech ETF |
Materials Select and VanEck Biotech Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Materials Select and VanEck Biotech
The main advantage of trading using opposite Materials Select and VanEck Biotech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select position performs unexpectedly, VanEck Biotech 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 VanEck Biotech will offset losses from the drop in VanEck Biotech's long position.Materials Select vs. Global X AgTech | Materials Select vs. Global X Wind | Materials Select vs. Global X Aging |
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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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