Correlation Between MicroSectors FANG and Energy Select

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and Energy 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 MicroSectors FANG and Energy Select into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MicroSectors FANG Index and Energy Select Sector, you can compare the effects of market volatilities on MicroSectors FANG and Energy 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 MicroSectors FANG with a short position of Energy Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Energy Select.

Diversification Opportunities for MicroSectors FANG and Energy Select

-0.5

Correlation Coefficient

MicroSectors FANG  Energy Select

Very good diversification

The 3 months correlation between MicroSectors and Energy is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Energy Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Select Sector and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with Energy Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Select Sector has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Energy Select go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Energy Select

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the Energy Select. But the etf apears to be less risky and, when comparing its historical volatility, MicroSectors FANG Index is 2.0 times less risky than Energy Select. The etf trades about -0.26 of its potential returns per unit of risk. The Energy Select Sector is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,132  in Energy Select Sector on May 2, 2025 and sell it today you would earn a total of  636.00  from holding Energy Select Sector or generate 7.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	22.95%
Values	Daily Returns

MicroSectors FANG Index  vs.  Energy Select Sector

MicroSectors FANG Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Etf's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Energy Select Sector

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Select Sector are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Energy Select may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with MicroSectors FANG and Energy Select

The main advantage of trading using opposite MicroSectors FANG and Energy Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, Energy 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 Energy Select will offset losses from the drop in Energy Select's long position.

The idea behind MicroSectors FANG Index and Energy Select Sector pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.