Correlation Between Health Care and Consumer Discretionary
Can any of the company-specific risk be diversified away by investing in both Health Care and Consumer Discretionary 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 Consumer Discretionary 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 Consumer Discretionary Select, you can compare the effects of market volatilities on Health Care and Consumer Discretionary 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 Consumer Discretionary. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Consumer Discretionary.
Diversification Opportunities for Health Care and Consumer Discretionary
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between Health and Consumer is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and Consumer Discretionary Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Discretionary 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 Consumer Discretionary. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Discretionary has no effect on the direction of Health Care i.e., Health Care and Consumer Discretionary go up and down completely randomly.
Pair Corralation between Health Care and Consumer Discretionary
Considering the 90-day investment horizon Health Care Select is expected to generate 1.0 times more return on investment than Consumer Discretionary. However, Health Care Select is 1.0 times less risky than Consumer Discretionary. It trades about 0.18 of its potential returns per unit of risk. Consumer Discretionary Select is currently generating about -0.05 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 Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Health Care Select vs. Consumer Discretionary Select
Performance |
| Timeline |
| Health Care Select |
| Consumer Discretionary |
Health Care and Consumer Discretionary Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Consumer Discretionary
The main advantage of trading using opposite Health Care and Consumer Discretionary positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Consumer Discretionary 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 Consumer Discretionary will offset losses from the drop in Consumer Discretionary'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 |
| Consumer Discretionary vs. Consumer Staples Select | Consumer Discretionary vs. Industrial Select Sector | Consumer Discretionary vs. Materials Select Sector | Consumer Discretionary vs. Health Care Select |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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