A subscriber forwarded the following chart with summary performances of State Street Energy Select Sector SPDR ETF (XLE), State Street Technology Select Sector SPDR ETF (XLK) and an equal-weighted, annually rebalanced combination of the two and encouraged further investigation. The chart indicates that XLE and XLK are materially diversifying since 2020, but the sample is extremely short and includes unusual COVID-19 and Iran war disruptors.
We extend the backtest to inceptions of XLE and XLK at both monthly and annual measurement frequencies, with respective monthly and annual rebalancing of the equal-weighted portfolio of the two ETFs (50-50). We consider statistical, cumulative and dynamic perspectives. Using month-end XLE and XLK dividend-adjusted prices during December 1998 through March 2026, we find that:
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