Correlation Between Financials Ultrasector and Baron Health
Can any of the company-specific risk be diversified away by investing in both Financials Ultrasector and Baron Health at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Financials Ultrasector and Baron Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financials Ultrasector Profund and Baron Health Care, you can compare the effects of market volatilities on Financials Ultrasector and Baron Health and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Financials Ultrasector with a short position of Baron Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financials Ultrasector and Baron Health.
Diversification Opportunities for Financials Ultrasector and Baron Health
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Financials and Baron is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Baron Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Health Care and Financials Ultrasector is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Financials Ultrasector Profund are associated (or correlated) with Baron Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Health Care has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Baron Health go up and down completely randomly.
Pair Corralation between Financials Ultrasector and Baron Health
Assuming the 90 days horizon Financials Ultrasector Profund is expected to generate 1.77 times more return on investment than Baron Health. However, Financials Ultrasector is 1.77 times more volatile than Baron Health Care. It trades about 0.16 of its potential returns per unit of risk. Baron Health Care is currently generating about 0.03 per unit of risk. If you would invest 3,395 in Financials Ultrasector Profund on November 4, 2024 and sell it today you would earn a total of 1,152 from holding Financials Ultrasector Profund or generate 33.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financials Ultrasector Profund vs. Baron Health Care
Performance |
| Timeline |
| Financials Ultrasector |
| Baron Health Care |
Financials Ultrasector and Baron Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financials Ultrasector and Baron Health
The main advantage of trading using opposite Financials Ultrasector and Baron Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financials Ultrasector position performs unexpectedly, Baron Health can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Baron Health will offset losses from the drop in Baron Health's long position.The idea behind Financials Ultrasector Profund and Baron Health Care pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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