Correlation Between Health Care and Highland Longshort
Can any of the company-specific risk be diversified away by investing in both Health Care and Highland Longshort 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 Health Care and Highland Longshort into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Health Care Fund and Highland Longshort Healthcare, you can compare the effects of market volatilities on Health Care and Highland Longshort 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 Health Care with a short position of Highland Longshort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Highland Longshort.
Diversification Opportunities for Health Care and Highland Longshort
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Health and Highland is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Highland Longshort Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Longshort and Health Care 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 Health Care Fund are associated (or correlated) with Highland Longshort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highland Longshort has no effect on the direction of Health Care i.e., Health Care and Highland Longshort go up and down completely randomly.
Pair Corralation between Health Care and Highland Longshort
Assuming the 90 days horizon Health Care Fund is expected to generate 4.02 times more return on investment than Highland Longshort. However, Health Care is 4.02 times more volatile than Highland Longshort Healthcare. It trades about 0.09 of its potential returns per unit of risk. Highland Longshort Healthcare is currently generating about 0.17 per unit of risk. If you would invest 3,102 in Health Care Fund on September 1, 2024 and sell it today you would earn a total of 574.00 from holding Health Care Fund or generate 18.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.63% |
| Values | Daily Returns |
Health Care Fund vs. Highland Longshort Healthcare
Performance |
| Timeline |
| Health Care Fund |
| Highland Longshort |
Health Care and Highland Longshort Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Highland Longshort
The main advantage of trading using opposite Health Care and Highland Longshort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Highland Longshort 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 Highland Longshort will offset losses from the drop in Highland Longshort's long position.| Health Care vs. Banking Fund Class | Health Care vs. Basic Materials Fund | Health Care vs. Biotechnology Fund Class | Health Care vs. Government Long Bond |
| Highland Longshort vs. Highland Longshort Healthcare | Highland Longshort vs. Highland Merger Arbitrage | Highland Longshort vs. Highland Merger Arbitrage | Highland Longshort vs. Highland Small Cap Equity |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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