Correlation Between Health Care and Consumer Products
Can any of the company-specific risk be diversified away by investing in both Health Care and Consumer Products 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 Consumer Products 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 Consumer Products Fund, you can compare the effects of market volatilities on Health Care and Consumer Products 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 Consumer Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Consumer Products.
Diversification Opportunities for Health Care and Consumer Products
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Health and CONSUMER is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Consumer Products Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Products 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 Consumer Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Products has no effect on the direction of Health Care i.e., Health Care and Consumer Products go up and down completely randomly.
Pair Corralation between Health Care and Consumer Products
Assuming the 90 days horizon Health Care is expected to generate 1.87 times less return on investment than Consumer Products. In addition to that, Health Care is 1.67 times more volatile than Consumer Products Fund. It trades about 0.1 of its total potential returns per unit of risk. Consumer Products Fund is currently generating about 0.31 per unit of volatility. If you would invest 3,179 in Consumer Products Fund on September 1, 2024 and sell it today you would earn a total of 117.00 from holding Consumer Products Fund or generate 3.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Fund vs. Consumer Products Fund
Performance |
| Timeline |
| Health Care Fund |
| Consumer Products |
Health Care and Consumer Products Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Consumer Products
The main advantage of trading using opposite Health Care and Consumer Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Consumer Products 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 Consumer Products will offset losses from the drop in Consumer Products' long position.| Health Care vs. Kinetics Small Cap | Health Care vs. Victory Rs Small | Health Care vs. Tax Managed Mid Small | Health Care vs. Artisan Small Cap |
| Consumer Products vs. Basic Materials Fund | Consumer Products vs. Nasdaq 100 Fund Class | Consumer Products vs. Health Care Fund | Consumer Products vs. Energy Fund Class |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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