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The risk of investing: An exploration on SPDR Sector ETFs

rcobo

15/07/2021

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We will examine the relationship between annual returns and largest annual drop. Let’s use some well known Select Sector SPDRs and the SPDR S&P 500 Trust (SPY). Using prices from 1999-01-01 to 2021-06-30 we calculate the annual returns and the biggest drop for each year.

For example, if we compare the figures between SPY (S&P500) and XLK (Technology), we see how the dispersion in returns and drops in XLK is much wider than the dispersion in SPY. XLK has three different years with an annual return below the SPY minimum and four years with an annual return greater than SPY maximum.

Scatter by ETF
Scatter by ETF

By clicking on each chart, plotly interactive charts will be available to select and deselect each ETF and view the values associated with each point.

We can also dive into the data from a different point of view. In the following plot, the points that share the same color correspond to the same year. Two of the most different scenarios are 2008 and 2009. Both experienced deep drops, but the annual returns were opposite.

Scatter by Year
Scatter by Year

It will also be interesting to see the distribution of the above figures. In the following graphs we observe the different ranges and distributions of the ten ETFs. It is easy to spot broader distributions (more risk) on Financial, Energy or Technology. On the other hand, Consumer Staples or Health Care present more conservative shapes. On the biggest drops side:

Biggest Annual Drop Distribution
Biggest Annual Drop Distribution

On annual returns:

Annual Returns Distribution

Annual Returns Distribution

Play with the plots yourself to get insights from the data.

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