Correlation Between Materials Select and IShares Consumer
Can any of the company-specific risk be diversified away by investing in both Materials Select and IShares Consumer 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 Materials Select and IShares Consumer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Materials Select Sector and iShares Consumer Discretionary, you can compare the effects of market volatilities on Materials Select and IShares Consumer 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 Materials Select with a short position of IShares Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and IShares Consumer.
Diversification Opportunities for Materials Select and IShares Consumer
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Materials and IShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and iShares Consumer Discretionary in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Consumer Dis and Materials 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 Materials Select Sector are associated (or correlated) with IShares Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Consumer Dis has no effect on the direction of Materials Select i.e., Materials Select and IShares Consumer go up and down completely randomly.
Pair Corralation between Materials Select and IShares Consumer
Considering the 90-day investment horizon Materials Select Sector is expected to under-perform the IShares Consumer. But the etf apears to be less risky and, when comparing its historical volatility, Materials Select Sector is 1.14 times less risky than IShares Consumer. The etf trades about -0.19 of its potential returns per unit of risk. The iShares Consumer Discretionary is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest 8,054 in iShares Consumer Discretionary on February 2, 2024 and sell it today you would lose (283.00) from holding iShares Consumer Discretionary or give up 3.51% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Materials Select Sector vs. iShares Consumer Discretionary
Performance |
Timeline |
Materials Select Sector |
iShares Consumer Dis |
Materials Select and IShares Consumer Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Materials Select and IShares Consumer
The main advantage of trading using opposite Materials Select and IShares Consumer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select position performs unexpectedly, IShares Consumer 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 IShares Consumer will offset losses from the drop in IShares Consumer's long position.Materials Select vs. Vanguard Industrials Index | Materials Select vs. Vanguard Communication Services | Materials Select vs. Vanguard Consumer Discretionary | Materials Select vs. Vanguard Consumer Staples |
IShares Consumer vs. Invesco Dynamic Food | IShares Consumer vs. Invesco Dynamic Building | IShares Consumer vs. Aquagold International | IShares Consumer vs. Morningstar Unconstrained Allocation |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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