Correlation Between Health Care and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Health Care and Equity Growth 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 Equity Growth 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 Equity Growth Strategy, you can compare the effects of market volatilities on Health Care and Equity Growth 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 Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Equity Growth.
Diversification Opportunities for Health Care and Equity Growth
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Health and Equity is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Equity Growth Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth Strategy 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 Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth Strategy has no effect on the direction of Health Care i.e., Health Care and Equity Growth go up and down completely randomly.
Pair Corralation between Health Care and Equity Growth
Assuming the 90 days horizon Health Care is expected to generate 2.07 times less return on investment than Equity Growth. In addition to that, Health Care is 1.62 times more volatile than Equity Growth Strategy. It trades about 0.1 of its total potential returns per unit of risk. Equity Growth Strategy is currently generating about 0.34 per unit of volatility. If you would invest 1,307 in Equity Growth Strategy on September 1, 2024 and sell it today you would earn a total of 51.00 from holding Equity Growth Strategy or generate 3.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Health Care Fund vs. Equity Growth Strategy
Performance |
| Timeline |
| Health Care Fund |
| Equity Growth Strategy |
Health Care and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Equity Growth
The main advantage of trading using opposite Health Care and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Equity Growth 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 Equity Growth will offset losses from the drop in Equity Growth'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 |
| Equity Growth vs. International Developed Markets | Equity Growth vs. Global Real Estate | Equity Growth vs. Global Real Estate | Equity Growth vs. Global Real Estate |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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