Correlation Between Consumer Products and Health Care
Can any of the company-specific risk be diversified away by investing in both Consumer Products 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 Consumer Products and Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumer Products Fund and Health Care Fund, you can compare the effects of market volatilities on Consumer Products 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 Consumer Products with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Products and Health Care.
Diversification Opportunities for Consumer Products and Health Care
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Consumer and Health is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Products Fund 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 Consumer Products 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 Consumer Products Fund 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 Consumer Products i.e., Consumer Products and Health Care go up and down completely randomly.
Pair Corralation between Consumer Products and Health Care
Assuming the 90 days horizon Consumer Products Fund is expected to generate 0.83 times more return on investment than Health Care. However, Consumer Products Fund is 1.2 times less risky than Health Care. It trades about 0.08 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 5,122 in Consumer Products Fund on September 3, 2024 and sell it today you would earn a total of 389.00 from holding Consumer Products Fund or generate 7.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumer Products Fund vs. Health Care Fund
Performance |
| Timeline |
| Consumer Products |
| Health Care Fund |
Consumer Products and Health Care Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Products and Health Care
The main advantage of trading using opposite Consumer Products and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Products 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.| Consumer Products vs. Health Care Fund | Consumer Products vs. Banking Fund Investor | Consumer Products vs. Retailing Fund Investor | Consumer Products vs. Financial Services Fund |
| Health Care vs. Ab Global Risk | Health Care vs. Artisan High Income | Health Care vs. Gmo High Yield | Health Care vs. Ab Global Risk |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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