Correlation Between Health Care and Biotechnology Fund
Can any of the company-specific risk be diversified away by investing in both Health Care and Biotechnology Fund 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 Biotechnology Fund 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 Biotechnology Fund Class, you can compare the effects of market volatilities on Health Care and Biotechnology Fund 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 Biotechnology Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Biotechnology Fund.
Diversification Opportunities for Health Care and Biotechnology Fund
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between HEALTH and BIOTECHNOLOGY is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Biotechnology Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Fund Class 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 Biotechnology Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Fund Class has no effect on the direction of Health Care i.e., Health Care and Biotechnology Fund go up and down completely randomly.
Pair Corralation between Health Care and Biotechnology Fund
Assuming the 90 days horizon Health Care Fund is expected to generate 0.59 times more return on investment than Biotechnology Fund. However, Health Care Fund is 1.68 times less risky than Biotechnology Fund. It trades about 0.09 of its potential returns per unit of risk. Biotechnology Fund Class is currently generating about 0.05 per unit of risk. If you would invest 3,000 in Health Care Fund on September 1, 2024 and sell it today you would earn a total of 51.00 from holding Health Care Fund or generate 1.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Fund vs. Biotechnology Fund Class
Performance |
| Timeline |
| Health Care Fund |
| Biotechnology Fund Class |
Health Care and Biotechnology Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Biotechnology Fund
The main advantage of trading using opposite Health Care and Biotechnology Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Biotechnology Fund 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 Biotechnology Fund will offset losses from the drop in Biotechnology Fund'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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