Correlation Between Precious Metals and Health Care
Can any of the company-specific risk be diversified away by investing in both Precious Metals and Health Care 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 Precious Metals and Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Precious Metals Fund and Health Care Fund, you can compare the effects of market volatilities on Precious Metals and Health Care 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 Precious Metals with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Precious Metals and Health Care.
Diversification Opportunities for Precious Metals and Health Care
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between PRECIOUS and Health is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Precious Metals Fund and Health Care Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Fund and Precious Metals 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 Precious Metals Fund are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Fund has no effect on the direction of Precious Metals i.e., Precious Metals and Health Care go up and down completely randomly.
Pair Corralation between Precious Metals and Health Care
Assuming the 90 days horizon Precious Metals Fund is expected to under-perform the Health Care. In addition to that, Precious Metals is 2.43 times more volatile than Health Care Fund. It trades about -0.01 of its total potential returns per unit of risk. Health Care Fund is currently generating about 0.03 per unit of volatility. If you would invest 4,346 in Health Care Fund on November 1, 2024 and sell it today you would earn a total of 59.00 from holding Health Care Fund or generate 1.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Precious Metals Fund vs. Health Care Fund
Performance |
| Timeline |
| Precious Metals |
| Health Care Fund |
Precious Metals and Health Care Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Precious Metals and Health Care
The main advantage of trading using opposite Precious Metals and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Precious Metals position performs unexpectedly, Health Care 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 Health Care will offset losses from the drop in Health Care's long position.| Precious Metals vs. Energy Fund Investor | Precious Metals vs. Energy Services Fund | Precious Metals vs. Basic Materials Fund | Precious Metals vs. Health Care Fund |
| Health Care vs. Financial Services Fund | Health Care vs. Transportation Fund Investor | Health Care vs. Banking Fund Investor | Health Care vs. Telecommunications 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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