Correlation Between Russell 2000 and Health Care
Can any of the company-specific risk be diversified away by investing in both Russell 2000 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 Russell 2000 and Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Russell 2000 15x and Health Care Fund, you can compare the effects of market volatilities on Russell 2000 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 Russell 2000 with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Health Care.
Diversification Opportunities for Russell 2000 and Health Care
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Russell and HEALTH is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 15x 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 Russell 2000 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 Russell 2000 15x 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 Russell 2000 i.e., Russell 2000 and Health Care go up and down completely randomly.
Pair Corralation between Russell 2000 and Health Care
Assuming the 90 days horizon Russell 2000 15x is expected to under-perform the Health Care. In addition to that, Russell 2000 is 2.18 times more volatile than Health Care Fund. It trades about -0.29 of its total potential returns per unit of risk. Health Care Fund is currently generating about -0.13 per unit of volatility. If you would invest 9,213 in Health Care Fund on December 1, 2024 and sell it today you would lose (179.00) from holding Health Care Fund or give up 1.94% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Russell 2000 15x vs. Health Care Fund
Performance |
| Timeline |
| Russell 2000 15x |
| Health Care Fund |
Russell 2000 and Health Care Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Russell 2000 and Health Care
The main advantage of trading using opposite Russell 2000 and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 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.| Russell 2000 vs. T Rowe Price | Russell 2000 vs. Rbc Funds Trust | Russell 2000 vs. Guidemark E Fixed | Russell 2000 vs. Tax Managed International Equity |
| Health Care vs. Transamerica High Yield | Health Care vs. Pioneer High Income | Health Care vs. Mesirow Financial High | Health Care vs. Alpine High Yield |
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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