Correlation Between Health Care and Materials Select
Can any of the company-specific risk be diversified away by investing in both Health Care and Materials Select 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 Materials Select 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 Materials Select Sector, you can compare the effects of market volatilities on Health Care and Materials Select 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 Materials Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Materials Select.
Diversification Opportunities for Health Care and Materials Select
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Health and Materials is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and Materials Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Select Sector 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 Materials Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Select Sector has no effect on the direction of Health Care i.e., Health Care and Materials Select go up and down completely randomly.
Pair Corralation between Health Care and Materials Select
Considering the 90-day investment horizon Health Care Select is expected to generate 1.22 times more return on investment than Materials Select. However, Health Care is 1.22 times more volatile than Materials Select Sector. It trades about 0.18 of its potential returns per unit of risk. Materials Select Sector is currently generating about 0.12 per unit of risk. If you would invest 14,018 in Health Care Select on November 18, 2024 and sell it today you would earn a total of 462.00 from holding Health Care Select or generate 3.3% 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. Materials Select Sector
Performance |
| Timeline |
| Health Care Select |
| Materials Select Sector |
Health Care and Materials Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Materials Select
The main advantage of trading using opposite Health Care and Materials Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Materials Select 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 Materials Select will offset losses from the drop in Materials Select'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 |
| Materials Select vs. Industrial Select Sector | Materials Select vs. Consumer Discretionary Select | Materials Select vs. Consumer Staples Select | Materials Select vs. Utilities 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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