Correlation Between Health Care and Electronics Fund
Can any of the company-specific risk be diversified away by investing in both Health Care and Electronics 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 Electronics 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 Electronics Fund Class, you can compare the effects of market volatilities on Health Care and Electronics 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 Electronics Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Electronics Fund.
Diversification Opportunities for Health Care and Electronics Fund
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Health and Electronics is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Electronics Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronics 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 Electronics Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronics Fund Class has no effect on the direction of Health Care i.e., Health Care and Electronics Fund go up and down completely randomly.
Pair Corralation between Health Care and Electronics Fund
Assuming the 90 days horizon Health Care Fund is expected to under-perform the Electronics Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Health Care Fund is 2.43 times less risky than Electronics Fund. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Electronics Fund Class is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 31,902 in Electronics Fund Class on October 18, 2024 and sell it today you would earn a total of 977.00 from holding Electronics Fund Class or generate 3.06% 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. Electronics Fund Class
Performance |
| Timeline |
| Health Care Fund |
| Electronics Fund Class |
Health Care and Electronics Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Electronics Fund
The main advantage of trading using opposite Health Care and Electronics Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Electronics 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 Electronics Fund will offset losses from the drop in Electronics Fund'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 |
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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