Correlation Between Health Care and IShares Healthcare
Can any of the company-specific risk be diversified away by investing in both Health Care and IShares Healthcare 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 Healthcare 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 Healthcare ETF, you can compare the effects of market volatilities on Health Care and IShares Healthcare 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 Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and IShares Healthcare.
Diversification Opportunities for Health Care and IShares Healthcare
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Health and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and iShares Healthcare ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Healthcare 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 Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Healthcare ETF has no effect on the direction of Health Care i.e., Health Care and IShares Healthcare go up and down completely randomly.
Pair Corralation between Health Care and IShares Healthcare
Considering the 90-day investment horizon Health Care is expected to generate 1.04 times less return on investment than IShares Healthcare. But when comparing it to its historical volatility, Health Care Select is 1.01 times less risky than IShares Healthcare. It trades about 0.02 of its potential returns per unit of risk. iShares Healthcare ETF is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 5,630 in iShares Healthcare ETF on August 24, 2024 and sell it today you would earn a total of 435.00 from holding iShares Healthcare ETF or generate 7.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Select vs. iShares Healthcare ETF
Performance |
| Timeline |
| Health Care Select |
| iShares Healthcare ETF |
Health Care and IShares Healthcare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and IShares Healthcare
The main advantage of trading using opposite Health Care and IShares Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, IShares Healthcare 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 Healthcare will offset losses from the drop in IShares Healthcare'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 |
| IShares Healthcare vs. iShares Financials ETF | IShares Healthcare vs. iShares Consumer Discretionary | IShares Healthcare vs. iShares Industrials ETF | IShares Healthcare vs. iShares Consumer Staples |
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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