Correlation Between Financial Select and Vanguard Financials
Can any of the company-specific risk be diversified away by investing in both Financial Select and Vanguard 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 Vanguard 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 Vanguard Financials Index, you can compare the effects of market volatilities on Financial Select and Vanguard 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 Vanguard Financials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and Vanguard Financials.
Diversification Opportunities for Financial Select and Vanguard Financials
1.0 | Correlation Coefficient |
No risk reduction
The 6 months correlation between Financial and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index 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 Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of Financial Select i.e., Financial Select and Vanguard Financials go up and down completely randomly.
Pair Corralation between Financial Select and Vanguard Financials
Considering the 90-day investment horizon Financial Select is expected to generate 1.02 times less return on investment than Vanguard Financials. But when comparing it to its historical volatility, Financial Select Sector is 1.1 times less risky than Vanguard Financials. It trades about 0.31 of its potential returns per unit of risk. Vanguard Financials Index is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 7,523 in Vanguard Financials Index on January 25, 2024 and sell it today you would earn a total of 2,449 from holding Vanguard Financials Index or generate 32.55% return on investment over 90 days.
| Time Period | 6 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Select Sector vs. Vanguard Financials Index
Performance |
| Timeline |
| Financial Select Sector |
| Vanguard Financials Index |
Financial Select and Vanguard Financials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Select and Vanguard Financials
The main advantage of trading using opposite Financial Select and Vanguard Financials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select position performs unexpectedly, Vanguard 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 Vanguard Financials will offset losses from the drop in Vanguard Financials' long position.| Financial Select vs. Merck Company | Financial Select vs. Chevron Corp | Financial Select vs. MagnaChip Semiconductor |
| Vanguard Financials vs. Merck Company | Vanguard Financials vs. Chevron Corp | Vanguard Financials vs. MagnaChip Semiconductor |
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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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