Correlation Between IShares Financials and Financial Select
Can any of the company-specific risk be diversified away by investing in both IShares Financials and Financial 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 IShares Financials and Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Financials ETF and Financial Select Sector, you can compare the effects of market volatilities on IShares Financials and Financial 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 IShares Financials with a short position of Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Financials and Financial Select.
Diversification Opportunities for IShares Financials and Financial Select
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Financial is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financials ETF and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and IShares Financials 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 iShares Financials ETF are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of IShares Financials i.e., IShares Financials and Financial Select go up and down completely randomly.
Pair Corralation between IShares Financials and Financial Select
Considering the 90-day investment horizon iShares Financials ETF is expected to generate about the same return on investment as Financial Select Sector. However, IShares Financials is 1.12 times more volatile than Financial Select Sector. It trades about -0.17 of its potential returns per unit of risk. Financial Select Sector is currently producing about -0.19 per unit of risk. If you would invest 4,107 in Financial Select Sector on January 19, 2024 and sell it today you would lose (138.00) from holding Financial Select Sector or give up 3.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
iShares Financials ETF vs. Financial Select Sector
Performance |
| Timeline |
| iShares Financials ETF |
| Financial Select Sector |
IShares Financials and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Financials and Financial Select
The main advantage of trading using opposite IShares Financials and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Financials position performs unexpectedly, Financial 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 Financial Select will offset losses from the drop in Financial Select's long position.| IShares Financials vs. Energy Select Sector | IShares Financials vs. Technology Select Sector | IShares Financials vs. Health Care Select | IShares Financials vs. Industrial Select Sector |
| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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