Correlation Between Health Care and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Health Care and SPDR SP 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 SPDR SP 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 SPDR SP Biotech, you can compare the effects of market volatilities on Health Care and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and SPDR SP.
Diversification Opportunities for Health Care and SPDR SP
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Health and SPDR is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and SPDR SP Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Biotech 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Biotech has no effect on the direction of Health Care i.e., Health Care and SPDR SP go up and down completely randomly.
Pair Corralation between Health Care and SPDR SP
Considering the 90-day investment horizon Health Care Select is expected to under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, Health Care Select is 2.2 times less risky than SPDR SP. The etf trades about -0.05 of its potential returns per unit of risk. The SPDR SP Biotech is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 9,856 in SPDR SP Biotech on August 30, 2024 and sell it today you would earn a total of 144.00 from holding SPDR SP Biotech or generate 1.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Select vs. SPDR SP Biotech
Performance |
| Timeline |
| Health Care Select |
| SPDR SP Biotech |
Health Care and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and SPDR SP
The main advantage of trading using opposite Health Care and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP'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 |
| SPDR SP vs. iShares Biotechnology ETF | SPDR SP vs. Health Care Select | SPDR SP vs. Technology Select Sector | SPDR SP vs. Industrial Select Sector |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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