Correlation Between Banking Fund and Health Care
Can any of the company-specific risk be diversified away by investing in both Banking Fund 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 Banking Fund and Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Banking Fund Class and Health Care Fund, you can compare the effects of market volatilities on Banking Fund 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 Banking Fund with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banking Fund and Health Care.
Diversification Opportunities for Banking Fund and Health Care
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Banking and Health is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Class 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 Banking Fund 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 Banking Fund Class 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 Banking Fund i.e., Banking Fund and Health Care go up and down completely randomly.
Pair Corralation between Banking Fund and Health Care
Assuming the 90 days horizon Banking Fund Class is expected to generate 2.09 times more return on investment than Health Care. However, Banking Fund is 2.09 times more volatile than Health Care Fund. It trades about 0.11 of its potential returns per unit of risk. Health Care Fund is currently generating about 0.03 per unit of risk. If you would invest 8,642 in Banking Fund Class on November 1, 2024 and sell it today you would earn a total of 963.00 from holding Banking Fund Class or generate 11.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Banking Fund Class vs. Health Care Fund
Performance |
| Timeline |
| Banking Fund Class |
| Health Care Fund |
Banking Fund and Health Care Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Banking Fund and Health Care
The main advantage of trading using opposite Banking Fund and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banking Fund 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.| Banking Fund vs. Oklahoma Municipal Fund | Banking Fund vs. Inverse Government Long | Banking Fund vs. Morningstar Municipal Bond | Banking Fund vs. Pace Municipal Fixed |
| Health Care vs. Basic Materials Fund | Health Care vs. Basic Materials Fund | Health Care vs. Banking Fund Class | Health Care vs. Basic Materials Fund |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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