Correlation Between Health Care and Vanguard Health
Can any of the company-specific risk be diversified away by investing in both Health Care and Vanguard Health 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 Vanguard Health 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 Vanguard Health Care, you can compare the effects of market volatilities on Health Care and Vanguard Health 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 Vanguard Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Vanguard Health.
Diversification Opportunities for Health Care and Vanguard Health
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Health and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and Vanguard Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Health Care 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 Vanguard Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Health Care has no effect on the direction of Health Care i.e., Health Care and Vanguard Health go up and down completely randomly.
Pair Corralation between Health Care and Vanguard Health
Considering the 90-day investment horizon Health Care Select is expected to generate 1.03 times more return on investment than Vanguard Health. However, Health Care is 1.03 times more volatile than Vanguard Health Care. It trades about 0.25 of its potential returns per unit of risk. Vanguard Health Care is currently generating about 0.25 per unit of risk. If you would invest 14,043 in Health Care Select on November 9, 2024 and sell it today you would earn a total of 669.00 from holding Health Care Select or generate 4.76% 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. Vanguard Health Care
Performance |
| Timeline |
| Health Care Select |
| Vanguard Health Care |
Health Care and Vanguard Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Vanguard Health
The main advantage of trading using opposite Health Care and Vanguard Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Vanguard Health 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 Vanguard Health will offset losses from the drop in Vanguard Health'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 |
| Vanguard Health vs. Vanguard Consumer Staples | Vanguard Health vs. Vanguard Financials Index | Vanguard Health vs. Vanguard Information Technology | Vanguard Health vs. Vanguard Consumer Discretionary |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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