Correlation Between Small Capitalization and Health Biotchnology
Can any of the company-specific risk be diversified away by investing in both Small Capitalization and Health Biotchnology 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 Small Capitalization and Health Biotchnology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Capitalization Portfolio and Health Biotchnology Portfolio, you can compare the effects of market volatilities on Small Capitalization and Health Biotchnology 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 Small Capitalization with a short position of Health Biotchnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Capitalization and Health Biotchnology.
Diversification Opportunities for Small Capitalization and Health Biotchnology
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Small and HEALTH is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Small Capitalization Portfolio and Health Biotchnology Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Biotchnology and Small Capitalization 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 Small Capitalization Portfolio are associated (or correlated) with Health Biotchnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Biotchnology has no effect on the direction of Small Capitalization i.e., Small Capitalization and Health Biotchnology go up and down completely randomly.
Pair Corralation between Small Capitalization and Health Biotchnology
Assuming the 90 days horizon Small Capitalization Portfolio is expected to generate 1.7 times more return on investment than Health Biotchnology. However, Small Capitalization is 1.7 times more volatile than Health Biotchnology Portfolio. It trades about 0.03 of its potential returns per unit of risk. Health Biotchnology Portfolio is currently generating about -0.01 per unit of risk. If you would invest 608.00 in Small Capitalization Portfolio on August 29, 2024 and sell it today you would earn a total of 117.00 from holding Small Capitalization Portfolio or generate 19.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Small Capitalization Portfolio vs. Health Biotchnology Portfolio
Performance |
| Timeline |
| Small Capitalization |
| Health Biotchnology |
Small Capitalization and Health Biotchnology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Capitalization and Health Biotchnology
The main advantage of trading using opposite Small Capitalization and Health Biotchnology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Capitalization position performs unexpectedly, Health Biotchnology 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 Biotchnology will offset losses from the drop in Health Biotchnology's long position.| Small Capitalization vs. Balanced Fund Investor | Small Capitalization vs. Scharf Global Opportunity | Small Capitalization vs. Fa 529 Aggressive | Small Capitalization vs. T Rowe Price |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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