Correlation Between Government Long and Health Care
Can any of the company-specific risk be diversified away by investing in both Government Long and Health Care 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 Government Long and Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Government Long Bond and Health Care Fund, you can compare the effects of market volatilities on Government Long and Health Care 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 Government Long with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Long and Health Care.
Diversification Opportunities for Government Long and Health Care
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Government and Health is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Government Long Bond and Health Care Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Fund and Government Long 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 Government Long Bond are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Fund has no effect on the direction of Government Long i.e., Government Long and Health Care go up and down completely randomly.
Pair Corralation between Government Long and Health Care
Assuming the 90 days horizon Government Long Bond is expected to generate 1.59 times more return on investment than Health Care. However, Government Long is 1.59 times more volatile than Health Care Fund. It trades about 0.07 of its potential returns per unit of risk. Health Care Fund is currently generating about 0.1 per unit of risk. If you would invest 2,218 in Government Long Bond on September 1, 2024 and sell it today you would earn a total of 41.00 from holding Government Long Bond or generate 1.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Long Bond vs. Health Care Fund
Performance |
| Timeline |
| Government Long Bond |
| Health Care Fund |
Government Long and Health Care Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Long and Health Care
The main advantage of trading using opposite Government Long and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Long position performs unexpectedly, Health Care 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 Health Care will offset losses from the drop in Health Care's long position.| Government Long vs. Janus Global Technology | Government Long vs. Hennessy Technology Fund | Government Long vs. Science Technology Fund | Government Long vs. Goldman Sachs Technology |
| Health Care vs. Banking Fund Class | Health Care vs. Basic Materials Fund | Health Care vs. Biotechnology Fund Class | Health Care vs. Government Long Bond |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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