Correlation Between Health Care and First Trust
Can any of the company-specific risk be diversified away by investing in both Health Care and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Health Care Select and First Trust Nasdaq, you can compare the effects of market volatilities on Health Care and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and First Trust.
Diversification Opportunities for Health Care and First Trust
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Health and First is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq 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 Select are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Nasdaq has no effect on the direction of Health Care i.e., Health Care and First Trust go up and down completely randomly.
Pair Corralation between Health Care and First Trust
Considering the 90-day investment horizon Health Care Select is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Health Care Select is 1.38 times less risky than First Trust. The etf trades about -0.13 of its potential returns per unit of risk. The First Trust Nasdaq is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 2,825 in First Trust Nasdaq on August 28, 2024 and sell it today you would earn a total of 4.00 from holding First Trust Nasdaq or generate 0.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Select vs. First Trust Nasdaq
Performance |
| Timeline |
| Health Care Select |
| First Trust Nasdaq |
Health Care and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and First Trust
The main advantage of trading using opposite Health Care and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Health Care vs. Consumer Staples Select | Health Care vs. Industrial Select Sector | Health Care vs. Consumer Discretionary Select | Health Care vs. Utilities Select Sector |
| First Trust vs. First Trust Nasdaq | First Trust vs. First Trust Nasdaq | First Trust vs. First Trust Nasdaq | First Trust vs. First Trust Indxx |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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