Correlation Between Health Care and Banking Fund
Can any of the company-specific risk be diversified away by investing in both Health Care and Banking 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 Banking 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 Banking Fund Class, you can compare the effects of market volatilities on Health Care and Banking 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 Banking Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Banking Fund.
Diversification Opportunities for Health Care and Banking Fund
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Health and Banking is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking 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 Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Class has no effect on the direction of Health Care i.e., Health Care and Banking Fund go up and down completely randomly.
Pair Corralation between Health Care and Banking Fund
Assuming the 90 days horizon Health Care Fund is expected to generate 0.6 times more return on investment than Banking Fund. However, Health Care Fund is 1.67 times less risky than Banking Fund. It trades about -0.07 of its potential returns per unit of risk. Banking Fund Class is currently generating about -0.18 per unit of risk. If you would invest 4,270 in Health Care Fund on September 15, 2024 and sell it today you would lose (55.00) from holding Health Care Fund or give up 1.29% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Fund vs. Banking Fund Class
Performance |
| Timeline |
| Health Care Fund |
| Banking Fund Class |
Health Care and Banking Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Banking Fund
The main advantage of trading using opposite Health Care and Banking Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Banking 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 Banking Fund will offset losses from the drop in Banking Fund's long position.| Health Care vs. Basic Materials Fund | Health Care vs. Basic Materials Fund | Health Care vs. Banking Fund Class | Health Care vs. Basic Materials Fund |
| Banking Fund vs. Financial Services Fund | Banking Fund vs. Health Care Fund | Banking Fund vs. Retailing Fund Investor | Banking Fund vs. Technology Fund Investor |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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