What is a sector analysis?

Sector analysis is a technique of investment evaluation in which investors of group companies that perform similar functions in the economy in sectors in analyzing potential shares. The idea of ​​this way of thinking is that shares in a certain type of business will tend to rise and fall along with the performance of the sector. Investors can divide the industry into general groups such as transport or technology, or more specific categories to better determine potentially hot stocks. There are several strategies that investors can use once they analyze the industry to try to improve investment performance. Investors can use the sector analysis to help narrow the area of ​​possible investment simply by focusing on large groups of companies that are similar to the role they play in the economy. The theory of this strategy is that shares in these groups tend to act in accordance with all others.

For example, if the technology sector works well, the investor can choose any company in the technological sector and get a positive result. Larger sectoral groups include technology, energy, consumer services, health care, finance and industrial. Of these larger groups, you can target smaller groups inside if the investor decides. For example, if the automotive industry overcomes the rest of the larger transport sector, investors may want to focus on companies in this industry instead of other transport companies.

The use of the sector analysis allows the investor to participate in some of the several different investment strategies. The investor who wants the diversification of the portfolio can use the tendency of different sectors. Some sectors such as technology tend to rise and fall with the market, but there are other less volatile reserves that tend to avoid market maximum. Acquisition of inventory from more stable withIn which can provide a nice subsoil in the portfolio, allowing the investor to take advantage of some more risky sectors for a possible high return.

Another possible strategy is investing from top to bottom, in which the investor identifies the industry doing the best and selects stocks from the inside, then moves to a sector that does not work so well, etc. The sector rotation strategy is another popular offshoot of sector analysis. In this approach, investors count on the cyclic nature of the market and seek to guess which industries are caused by an increase. Since other investors do the same, this sector will be even higher until the peak is. At this point, the investor turns sectors and invests in another who is not heading to the top.