Correlation Between Vanguard Health and Biotechnology Fund
Can any of the company-specific risk be diversified away by investing in both Vanguard Health and Biotechnology 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 Vanguard Health and Biotechnology Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Health Care and Biotechnology Fund Class, you can compare the effects of market volatilities on Vanguard Health and Biotechnology 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 Vanguard Health with a short position of Biotechnology Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Health and Biotechnology Fund.
Diversification Opportunities for Vanguard Health and Biotechnology Fund
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Biotechnology is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and Biotechnology Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Fund Class and Vanguard Health 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 Vanguard Health Care are associated (or correlated) with Biotechnology Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Fund Class has no effect on the direction of Vanguard Health i.e., Vanguard Health and Biotechnology Fund go up and down completely randomly.
Pair Corralation between Vanguard Health and Biotechnology Fund
Assuming the 90 days horizon Vanguard Health is expected to generate 4.15 times less return on investment than Biotechnology Fund. But when comparing it to its historical volatility, Vanguard Health Care is 1.45 times less risky than Biotechnology Fund. It trades about 0.02 of its potential returns per unit of risk. Biotechnology Fund Class is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 5,884 in Biotechnology Fund Class on September 4, 2024 and sell it today you would earn a total of 1,008 from holding Biotechnology Fund Class or generate 17.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Vanguard Health Care vs. Biotechnology Fund Class
Performance |
| Timeline |
| Vanguard Health Care |
| Biotechnology Fund Class |
Vanguard Health and Biotechnology Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Health and Biotechnology Fund
The main advantage of trading using opposite Vanguard Health and Biotechnology Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Health position performs unexpectedly, Biotechnology 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 Biotechnology Fund will offset losses from the drop in Biotechnology Fund's long position.| Vanguard Health vs. Vanguard Energy Fund | Vanguard Health vs. Vanguard Dividend Growth | Vanguard Health vs. Vanguard Wellington Fund | Vanguard Health vs. Vanguard Capital Opportunity |
| Biotechnology Fund vs. Basic Materials Fund | Biotechnology Fund vs. Basic Materials Fund | Biotechnology Fund vs. Banking Fund Class | Biotechnology Fund vs. Basic Materials 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
Other Complementary Tools
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences | |
| Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios |