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Articles tagged with: Sectors

14 September 2011

S&P Sector Correlations

Earlier this year, the CME added a whole range of S&P E-mini sector index futures to their universe of available instruments. These contracts were created to provide a mechanism to directly hedge sector exposure according to the S&P Select Sector group of indices.

PortfolioScience has followed suit and introduced symbols for all CME S&P sector index futures contracts. With regards to current market conditions, the correlations of each of these sectors to the broader S&P 500 index are directly relevant. Currently, YTD correlation for each of the cash indices stands at:

SymbolNameYTD Correlation
IXYConsumer Discretionary0.959
IXRConsumer Staples0.891
IXEEnergy0.886
IXMFinancial0.934
IXVHealth Care0.939
IXIIndustrial0.963
IXBMaterials0.929
IXTTechnology0.959
IXUUtilities0.843

Save for Energy and Utilities, most of these sectors are showing fairly high correlations to the market. This is likely a result of equities as an asset class suffering from systemic volatility due to the effects of the financial crisis rearing its head recently. Another useful analysis is the sector cross-correlations, which are presented below in the form of a correlation matrix. All calculations are using YTD data:

Using Excel's "conditional formatting" feature, the correlation matrix we initially generated using the RiskAPI Add-In was modified to highlight higher correlations in red and lower correlations in yellow. Note that Utilities (IXU) currently has the lowest cross-correlation of the group.