Correlation Between Health Care and Steward Large
Can any of the company-specific risk be diversified away by investing in both Health Care and Steward Large 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 Steward Large 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 Steward Large Cap, you can compare the effects of market volatilities on Health Care and Steward Large 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 Steward Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Steward Large.
Diversification Opportunities for Health Care and Steward Large
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Health and Steward is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Steward Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steward Large Cap 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 Steward Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steward Large Cap has no effect on the direction of Health Care i.e., Health Care and Steward Large go up and down completely randomly.
Pair Corralation between Health Care and Steward Large
Assuming the 90 days horizon Health Care is expected to generate 8.14 times less return on investment than Steward Large. But when comparing it to its historical volatility, Health Care Fund is 1.38 times less risky than Steward Large. It trades about 0.02 of its potential returns per unit of risk. Steward Large Cap is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,741 in Steward Large Cap on September 1, 2024 and sell it today you would earn a total of 591.00 from holding Steward Large Cap or generate 21.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Fund vs. Steward Large Cap
Performance |
| Timeline |
| Health Care Fund |
| Steward Large Cap |
Health Care and Steward Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Steward Large
The main advantage of trading using opposite Health Care and Steward Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Steward Large 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 Steward Large will offset losses from the drop in Steward Large'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 |
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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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