Correlation Between EA Series and Financial Select

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

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

Diversification Opportunities for EA Series and Financial Select

-0.39

Correlation Coefficient

EA Series  Financial Select

Very good diversification

The 3 months correlation between DRLL and Financial is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding EA Series Trust 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 EA Series 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 EA Series Trust 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 EA Series i.e., EA Series and Financial Select go up and down completely randomly.

Pair Corralation between EA Series and Financial Select

Given the investment horizon of 90 days EA Series Trust is expected to under-perform the Financial Select. In addition to that, EA Series is 1.6 times more volatile than Financial Select Sector. It trades about -0.09 of its total potential returns per unit of risk. Financial Select Sector is currently generating about 0.05 per unit of volatility. If you would invest  4,475  in Financial Select Sector on June 29, 2024 and sell it today you would earn a total of  40.00  from holding Financial Select Sector or generate 0.89% return on investment over 90 days.

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

EA Series Trust  vs.  Financial Select Sector

EA Series Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EA Series Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, EA Series is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Financial Select Sector

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Financial Select may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with EA Series and Financial Select

The main advantage of trading using opposite EA Series and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EA Series 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.

The idea behind EA Series Trust and Financial 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.