Correlation Between Health Care and Telecommunications
Can any of the company-specific risk be diversified away by investing in both Health Care and Telecommunications 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 Telecommunications 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 Telecommunications Fund Class, you can compare the effects of market volatilities on Health Care and Telecommunications 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 Telecommunications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Telecommunications.
Diversification Opportunities for Health Care and Telecommunications
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Health and Telecommunications is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Telecommunications Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecommunications 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 Telecommunications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecommunications has no effect on the direction of Health Care i.e., Health Care and Telecommunications go up and down completely randomly.
Pair Corralation between Health Care and Telecommunications
Assuming the 90 days horizon Health Care is expected to generate 2.39 times less return on investment than Telecommunications. But when comparing it to its historical volatility, Health Care Fund is 1.26 times less risky than Telecommunications. It trades about 0.03 of its potential returns per unit of risk. Telecommunications Fund Class is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 3,942 in Telecommunications Fund Class on September 3, 2024 and sell it today you would earn a total of 917.00 from holding Telecommunications Fund Class or generate 23.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Fund vs. Telecommunications Fund Class
Performance |
| Timeline |
| Health Care Fund |
| Telecommunications |
Health Care and Telecommunications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Telecommunications
The main advantage of trading using opposite Health Care and Telecommunications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Telecommunications 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 Telecommunications will offset losses from the drop in Telecommunications' 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 |
| Telecommunications vs. Prudential Financial Services | Telecommunications vs. Icon Financial Fund | Telecommunications vs. Transamerica Financial Life | Telecommunications vs. Goldman Sachs Financial |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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