Correlation Between Health Care and Consumer Goods
Can any of the company-specific risk be diversified away by investing in both Health Care and Consumer Goods 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 Consumer Goods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Health Care Ultrasector and Consumer Goods Ultrasector, you can compare the effects of market volatilities on Health Care and Consumer Goods 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 Consumer Goods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Consumer Goods.
Diversification Opportunities for Health Care and Consumer Goods
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Health and Consumer is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Ultrasector and Consumer Goods Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Goods Ultra 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 Ultrasector are associated (or correlated) with Consumer Goods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Goods Ultra has no effect on the direction of Health Care i.e., Health Care and Consumer Goods go up and down completely randomly.
Pair Corralation between Health Care and Consumer Goods
Assuming the 90 days horizon Health Care is expected to generate 2.14 times less return on investment than Consumer Goods. In addition to that, Health Care is 1.01 times more volatile than Consumer Goods Ultrasector. It trades about 0.02 of its total potential returns per unit of risk. Consumer Goods Ultrasector is currently generating about 0.05 per unit of volatility. If you would invest 6,603 in Consumer Goods Ultrasector on September 3, 2024 and sell it today you would earn a total of 1,459 from holding Consumer Goods Ultrasector or generate 22.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Ultrasector vs. Consumer Goods Ultrasector
Performance |
| Timeline |
| Health Care Ultrasector |
| Consumer Goods Ultra |
Health Care and Consumer Goods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Consumer Goods
The main advantage of trading using opposite Health Care and Consumer Goods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Consumer Goods 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 Consumer Goods will offset losses from the drop in Consumer Goods' long position.| Health Care vs. Internet Ultrasector Profund | Health Care vs. Semiconductor Ultrasector Profund | Health Care vs. Pharmaceuticals Ultrasector Profund |
| Consumer Goods vs. Consumer Services Ultrasector | Consumer Goods vs. Industrials Ultrasector Profund | Consumer Goods vs. Financials Ultrasector Profund | Consumer Goods vs. Health Care Ultrasector |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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