Correlation Between Health Care and IShares Biotechnology
Can any of the company-specific risk be diversified away by investing in both Health Care and IShares Biotechnology 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 IShares Biotechnology 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 iShares Biotechnology ETF, you can compare the effects of market volatilities on Health Care and IShares Biotechnology 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 IShares Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and IShares Biotechnology.
Diversification Opportunities for Health Care and IShares Biotechnology
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Health and IShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and iShares Biotechnology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Biotechnology ETF 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 IShares Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Biotechnology ETF has no effect on the direction of Health Care i.e., Health Care and IShares Biotechnology go up and down completely randomly.
Pair Corralation between Health Care and IShares Biotechnology
Considering the 90-day investment horizon Health Care is expected to generate 4.09 times less return on investment than IShares Biotechnology. But when comparing it to its historical volatility, Health Care Select is 1.57 times less risky than IShares Biotechnology. It trades about 0.01 of its potential returns per unit of risk. iShares Biotechnology ETF is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 13,837 in iShares Biotechnology ETF on November 27, 2024 and sell it today you would earn a total of 37.00 from holding iShares Biotechnology ETF or generate 0.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Select vs. iShares Biotechnology ETF
Performance |
| Timeline |
| Health Care Select |
| iShares Biotechnology ETF |
Health Care and IShares Biotechnology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and IShares Biotechnology
The main advantage of trading using opposite Health Care and IShares Biotechnology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, IShares Biotechnology 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 IShares Biotechnology will offset losses from the drop in IShares Biotechnology'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 |
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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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