Correlation Between S&P 500 and Different Sectors You will calculate and compare the correlations between the S&P 500 index and three different sectors: Technology, Energy and Food & Beverage stocks. This comparison will help you analyze how different sectors correlate with the overall market. Expected Learning Outcomes: - You will understand how to retrieve financial data using Excel’s STOCKHISTORY function. - You will learn to calculate daily returns and apply correlation analysis. - You will gain insight into how different sectors (tech, energy and food & beverage) might behave in relation to the overall market. This example will help you to gain hands-on experience with both data retrieval and interpreting financial relationships through correlation analysis! Steps: 1. Retrieving Data: Use Excel’s STOCKHISTORY function to retrieve historical data for: - S&P 500 Index (ticker: SPY) - Technology ETF (e.g., XLK – a tech sector ETF) - Energy ETF (e.g., XLE – an energy sector ETF) - Food & Beverage ETF (e.g., PBJ – a food beverage sector ETF) Monthly closing prices for the past 5 years (e.g., from January 1, 2019, to January 1, 2024). Use STOCKHISTORY Function (“ticker”, “start date”, “end date”, “interval”,” headers”, “data type”) 2. Calculating Monthly Returns: Once the price is retrieved, you should calculate the monthly returns for each asset. S&P 500 Technology ETF (XLK) Energy ETF (XLE) Food & Beverage ETF (PBJ) 3. Running Correlation Analysis: After calculating the monthly returns, you will use Excel’s “CORREL” function to calculate the correlation between: S&P 500 and Technology ETF (XLK) S&P 500 and Energy ETF (XLE) S&P 500 and Food & Beverage ETF (PBJ) 4. Compare the Correlations: You will now compare the correlations: Correlation between S&P 500 and Technology ETF (XLK) Correlation between S&P 500 and Energy ETF (XLE) Correlation between S&P 500 and Food & Beverage ETF (PBJ) 5. Interpret the Results: High Positive Correlation (close to 1) means that the two assets move in the same direction. Low or Negative Correlation (close to 0 or negative) means that the two assets move independently or in opposite directions. Discussion Questions: 1. Which sector (Technology or Energy or Food & Beverage) has a higher correlation with the overall S&P 500 market? Provide correlation coefficients for each sector. 2. Why do you think one sector has a stronger correlation with the S&P 500 than the other? 3. How might economic events (e.g., oil price fluctuations or tech innovations) impact these correlations?
Correlation Between S&P 500 and Different Sectors
You will calculate and compare the correlations between the S&P 500 index and three different sectors: Technology, Energy and Food & Beverage stocks. This comparison will help you analyze how different sectors correlate with the overall market.
Expected Learning Outcomes:
- You will understand how to retrieve financial data using Excel’s STOCKHISTORY function.
- You will learn to calculate daily returns and apply correlation analysis.
- You will gain insight into how different sectors (tech, energy and food & beverage) might behave in relation to the overall market.
This example will help you to gain hands-on experience with both data retrieval and interpreting financial relationships through correlation analysis!
Steps:
1. Retrieving Data:
Use Excel’s STOCKHISTORY function to retrieve historical data for:
- S&P 500 Index (ticker: SPY)
- Technology ETF (e.g., XLK – a tech sector ETF)
- Energy ETF (e.g., XLE – an energy sector ETF)
- Food & Beverage ETF (e.g., PBJ – a food beverage sector ETF)
Monthly closing prices for the past 5 years (e.g., from January 1, 2019, to January 1, 2024).
Use STOCKHISTORY Function (“ticker”, “start date”, “end date”, “interval”,” headers”, “data type”)
2. Calculating Monthly Returns:
Once the price is retrieved, you should calculate the monthly returns for each asset.
- S&P 500
- Technology ETF (XLK)
- Energy ETF (XLE)
- Food & Beverage ETF (PBJ)
3. Running Correlation Analysis:
After calculating the monthly returns, you will use Excel’s “CORREL” function to calculate the correlation between:
- S&P 500 and Technology ETF (XLK)
- S&P 500 and Energy ETF (XLE)
- S&P 500 and Food & Beverage ETF (PBJ)
4. Compare the Correlations:
You will now compare the correlations:
- Correlation between S&P 500 and Technology ETF (XLK)
- Correlation between S&P 500 and Energy ETF (XLE)
- Correlation between S&P 500 and Food & Beverage ETF (PBJ)
5. Interpret the Results:
- High Positive Correlation (close to 1) means that the two assets move in the same direction.
- Low or Negative Correlation (close to 0 or negative) means that the two assets move independently or in opposite directions.
Discussion Questions:
1. Which sector (Technology or Energy or Food & Beverage) has a higher correlation with the overall S&P 500 market? Provide correlation coefficients for each sector.
2. Why do you think one sector has a stronger correlation with the S&P 500 than the other?
3. How might economic events (e.g., oil price fluctuations or tech innovations) impact these correlations?
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