Correlation Between Financial Select and IShares Financials
Can any of the company-specific risk be diversified away by investing in both Financial Select and IShares Financials 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 Financial Select and IShares Financials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Select Sector and iShares Financials ETF, you can compare the effects of market volatilities on Financial Select and IShares Financials 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 Financial Select with a short position of IShares Financials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and IShares Financials.
Diversification Opportunities for Financial Select and IShares Financials
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Financial and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and iShares Financials ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Financials ETF and Financial 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 Financial Select Sector are associated (or correlated) with IShares Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Financials ETF has no effect on the direction of Financial Select i.e., Financial Select and IShares Financials go up and down completely randomly.
Pair Corralation between Financial Select and IShares Financials
Considering the 90-day investment horizon Financial Select is expected to generate 1.1 times less return on investment than IShares Financials. But when comparing it to its historical volatility, Financial Select Sector is 1.09 times less risky than IShares Financials. It trades about 0.14 of its potential returns per unit of risk. iShares Financials ETF is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 6,927 in iShares Financials ETF on January 19, 2024 and sell it today you would earn a total of 2,077 from holding iShares Financials ETF or generate 29.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.56% |
| Values | Daily Returns |
Financial Select Sector vs. iShares Financials ETF
Performance |
| Timeline |
| Financial Select Sector |
| iShares Financials ETF |
Financial Select and IShares Financials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Select and IShares Financials
The main advantage of trading using opposite Financial Select and IShares Financials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select position performs unexpectedly, IShares Financials 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 IShares Financials will offset losses from the drop in IShares Financials' long position.| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
| IShares Financials vs. Energy Select Sector | IShares Financials vs. Technology Select Sector | IShares Financials vs. Health Care Select | IShares Financials 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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