Correlation Between Technology Select and Themes Cybersecurity

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

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

Diversification Opportunities for Technology Select and Themes Cybersecurity

0.93

Correlation Coefficient

Technology Select  Themes Cybersecurity

Almost no diversification

The 3 months correlation between Technology and Themes is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and Themes Cybersecurity ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Themes Cybersecurity ETF and Technology 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 Technology Select Sector are associated (or correlated) with Themes Cybersecurity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Themes Cybersecurity ETF has no effect on the direction of Technology Select i.e., Technology Select and Themes Cybersecurity go up and down completely randomly.

Pair Corralation between Technology Select and Themes Cybersecurity

Considering the 90-day investment horizon Technology Select Sector is expected to generate 1.16 times more return on investment than Themes Cybersecurity. However, Technology Select is 1.16 times more volatile than Themes Cybersecurity ETF. It trades about 0.04 of its potential returns per unit of risk. Themes Cybersecurity ETF is currently generating about 0.04 per unit of risk. If you would invest  22,356  in Technology Select Sector on August 23, 2024 and sell it today you would earn a total of  757.00  from holding Technology Select Sector or generate 3.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Technology Select Sector  vs.  Themes Cybersecurity ETF

Technology Select Sector

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Themes Cybersecurity ETF

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Themes Cybersecurity ETF are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Themes Cybersecurity is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Technology Select and Themes Cybersecurity

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

The idea behind Technology Select Sector and Themes Cybersecurity ETF 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.