Correlation Between Health Care and California Bond
Can any of the company-specific risk be diversified away by investing in both Health Care and California Bond 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 California Bond 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 California Bond Fund, you can compare the effects of market volatilities on Health Care and California Bond 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 California Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and California Bond.
Diversification Opportunities for Health Care and California Bond
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Health and California is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and California Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Bond 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 California Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Bond has no effect on the direction of Health Care i.e., Health Care and California Bond go up and down completely randomly.
Pair Corralation between Health Care and California Bond
Assuming the 90 days horizon Health Care Fund is expected to generate 3.59 times more return on investment than California Bond. However, Health Care is 3.59 times more volatile than California Bond Fund. It trades about 0.07 of its potential returns per unit of risk. California Bond Fund is currently generating about 0.09 per unit of risk. If you would invest 3,263 in Health Care Fund on September 4, 2024 and sell it today you would earn a total of 413.00 from holding Health Care Fund or generate 12.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Health Care Fund vs. California Bond Fund
Performance |
| Timeline |
| Health Care Fund |
| California Bond |
Health Care and California Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and California Bond
The main advantage of trading using opposite Health Care and California Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, California Bond 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 California Bond will offset losses from the drop in California Bond's long position.| Health Care vs. Technology Fund Investor | Health Care vs. Financial Services Fund | Health Care vs. Transportation Fund Investor | Health Care vs. Banking Fund Investor |
| California Bond vs. Goldman Sachs Growth | California Bond vs. Smallcap Growth Fund | California Bond vs. L Abbett Growth | California Bond vs. Small Pany Growth |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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