Correlation Between Technology Select and Applied Finance

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

Diversification Opportunities for Technology Select and Applied Finance

-0.17

Correlation Coefficient

Technology Select  Applied Finance

Good diversification

The 3 months correlation between Technology and Applied is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and Applied Finance Explorer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Explorer 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 Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Explorer has no effect on the direction of Technology Select i.e., Technology Select and Applied Finance go up and down completely randomly.

Pair Corralation between Technology Select and Applied Finance

Considering the 90-day investment horizon Technology Select Sector is expected to generate 1.4 times more return on investment than Applied Finance. However, Technology Select is 1.4 times more volatile than Applied Finance Explorer. It trades about 0.06 of its potential returns per unit of risk. Applied Finance Explorer is currently generating about -0.1 per unit of risk. If you would invest  26,149  in Technology Select Sector on August 24, 2025 and sell it today you would earn a total of  1,171  from holding Technology Select Sector or generate 4.48% return on investment over 90 days.

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

Technology Select Sector  vs.  Applied Finance Explorer

Technology Select Sector

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 4 (%) 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 current stock price mess, may contribute to short-term losses for the institutional investors.

Applied Finance Explorer

Risk-Adjusted Performance

Weakest

Over the last 90 days Applied Finance Explorer has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Applied Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Technology Select and Applied Finance

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

The idea behind Technology Select Sector and Applied Finance Explorer 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 Global Correlations module to find global opportunities by holding instruments from different markets.