Correlation Between Netcare and Life Healthcare
Can any of the company-specific risk be diversified away by investing in both Netcare and Life Healthcare 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 Netcare and Life Healthcare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Netcare and Life Healthcare, you can compare the effects of market volatilities on Netcare and Life Healthcare 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 Netcare with a short position of Life Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Netcare and Life Healthcare.
Diversification Opportunities for Netcare and Life Healthcare
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Netcare and Life is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Netcare and Life Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Healthcare and Netcare 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 Netcare are associated (or correlated) with Life Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Healthcare has no effect on the direction of Netcare i.e., Netcare and Life Healthcare go up and down completely randomly.
Pair Corralation between Netcare and Life Healthcare
Assuming the 90 days trading horizon Netcare is expected to generate 0.66 times more return on investment than Life Healthcare. However, Netcare is 1.52 times less risky than Life Healthcare. It trades about -0.01 of its potential returns per unit of risk. Life Healthcare is currently generating about -0.19 per unit of risk. If you would invest 149,800 in Netcare on October 21, 2024 and sell it today you would lose (300.00) from holding Netcare or give up 0.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Netcare vs. Life Healthcare
Performance |
| Timeline |
| Netcare |
| Life Healthcare |
Netcare and Life Healthcare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Netcare and Life Healthcare
The main advantage of trading using opposite Netcare and Life Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Netcare position performs unexpectedly, Life Healthcare 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 Life Healthcare will offset losses from the drop in Life Healthcare's long position.| Netcare vs. Life Healthcare | Netcare vs. AfroCentric Investment Corp | Netcare vs. Aveng | Netcare vs. Thungela Resources Limited |
| Life Healthcare vs. Netcare | Life Healthcare vs. AfroCentric Investment Corp | Life Healthcare vs. Aveng | Life Healthcare vs. Thungela Resources Limited |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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