Correlation Between Health Care and Precious Metals
Can any of the company-specific risk be diversified away by investing in both Health Care and Precious Metals 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 Precious Metals 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 Precious Metals Fund, you can compare the effects of market volatilities on Health Care and Precious Metals 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 Precious Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Precious Metals.
Diversification Opportunities for Health Care and Precious Metals
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Health and Precious is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Precious Metals Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals 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 Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals has no effect on the direction of Health Care i.e., Health Care and Precious Metals go up and down completely randomly.
Pair Corralation between Health Care and Precious Metals
Assuming the 90 days horizon Health Care is expected to generate 4.06 times less return on investment than Precious Metals. But when comparing it to its historical volatility, Health Care Fund is 2.55 times less risky than Precious Metals. It trades about 0.02 of its potential returns per unit of risk. Precious Metals Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 3,252 in Precious Metals Fund on August 26, 2024 and sell it today you would earn a total of 971.00 from holding Precious Metals Fund or generate 29.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Fund vs. Precious Metals Fund
Performance |
| Timeline |
| Health Care Fund |
| Precious Metals |
Health Care and Precious Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Precious Metals
The main advantage of trading using opposite Health Care and Precious Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Precious Metals 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 Precious Metals will offset losses from the drop in Precious Metals' 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 |
| Precious Metals vs. Energy Fund Investor | Precious Metals vs. Energy Services Fund | Precious Metals vs. Basic Materials Fund | Precious Metals vs. Health Care Fund |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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