Correlation Between Health Care and Materials Portfolio
Can any of the company-specific risk be diversified away by investing in both Health Care and Materials Portfolio 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 Health Care and Materials Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Health Care Services and Materials Portfolio Materials, you can compare the effects of market volatilities on Health Care and Materials Portfolio 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 Health Care with a short position of Materials Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Materials Portfolio.
Diversification Opportunities for Health Care and Materials Portfolio
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Health and Materials is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Services and Materials Portfolio Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio and Health Care 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 Health Care Services are associated (or correlated) with Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of Health Care i.e., Health Care and Materials Portfolio go up and down completely randomly.
Pair Corralation between Health Care and Materials Portfolio
Assuming the 90 days horizon Health Care Services is expected to generate 1.51 times more return on investment than Materials Portfolio. However, Health Care is 1.51 times more volatile than Materials Portfolio Materials. It trades about 0.42 of its potential returns per unit of risk. Materials Portfolio Materials is currently generating about 0.4 per unit of risk. If you would invest 10,124 in Health Care Services on November 4, 2024 and sell it today you would earn a total of 983.00 from holding Health Care Services or generate 9.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Services vs. Materials Portfolio Materials
Performance |
| Timeline |
| Health Care Services |
| Materials Portfolio |
Health Care and Materials Portfolio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Materials Portfolio
The main advantage of trading using opposite Health Care and Materials Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Materials Portfolio 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 Materials Portfolio will offset losses from the drop in Materials Portfolio's long position.| Health Care vs. Construction And Housing | Health Care vs. Insurance Portfolio Insurance | Health Care vs. Brokerage And Investment | Health Care vs. Medical Equipment And |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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