Correlation Between Technology Select and Consumer Staples

Can any of the company-specific risk be diversified away by investing in both Technology Select and Consumer Staples 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 Consumer Staples 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 Consumer Staples Select, you can compare the effects of market volatilities on Technology Select and Consumer Staples 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 Consumer Staples. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology Select and Consumer Staples.

Diversification Opportunities for Technology Select and Consumer Staples

0.07

Correlation Coefficient

Technology Select  Consumer Staples

Significant diversification

The 3 months correlation between Technology and Consumer is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and Consumer Staples Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Staples Select 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 Consumer Staples. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Staples Select has no effect on the direction of Technology Select i.e., Technology Select and Consumer Staples go up and down completely randomly.

Pair Corralation between Technology Select and Consumer Staples

Considering the 90-day investment horizon Technology Select Sector is expected to generate 1.25 times more return on investment than Consumer Staples. However, Technology Select is 1.25 times more volatile than Consumer Staples Select. It trades about 0.28 of its potential returns per unit of risk. Consumer Staples Select is currently generating about 0.06 per unit of risk. If you would invest  22,732  in Technology Select Sector on May 11, 2025 and sell it today you would earn a total of  3,860  from holding Technology Select Sector or generate 16.98% return on investment over 90 days.

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

Technology Select Sector  vs.  Consumer Staples Select

Technology Select Sector

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, Technology Select disclosed solid returns over the last few months and may actually be approaching a breakup point.

Consumer Staples Select

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Staples Select are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable essential indicators, Consumer Staples is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Technology Select and Consumer Staples

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

The idea behind Technology Select Sector and Consumer Staples Select 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.