Correlation Between Alger Health and Us Equity

Can any of the company-specific risk be diversified away by investing in both Alger Health and Us Equity 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 Alger Health and Us Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alger Health Sciences and The Equity Growth, you can compare the effects of market volatilities on Alger Health and Us Equity 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 Alger Health with a short position of Us Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alger Health and Us Equity.

Diversification Opportunities for Alger Health and Us Equity

0.65

Correlation Coefficient

Alger Health  Us Equity

Poor diversification

The 3 months correlation between Alger and BGGKX is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Alger Health Sciences and The Equity Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and Alger Health 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 Alger Health Sciences are associated (or correlated) with Us Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Alger Health i.e., Alger Health and Us Equity go up and down completely randomly.

Pair Corralation between Alger Health and Us Equity

Assuming the 90 days horizon Alger Health Sciences is expected to under-perform the Us Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Alger Health Sciences is 1.86 times less risky than Us Equity. The mutual fund trades about -0.15 of its potential returns per unit of risk. The The Equity Growth is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,687  in The Equity Growth on December 28, 2024 and sell it today you would lose (138.00) from holding The Equity Growth or give up 5.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Alger Health Sciences  vs.  The Equity Growth

Alger Health Sciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alger Health Sciences has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Equity Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Equity Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, Us Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alger Health and Us Equity

The main advantage of trading using opposite Alger Health and Us Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alger Health position performs unexpectedly, Us Equity 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 Us Equity will offset losses from the drop in Us Equity's long position.

The idea behind Alger Health Sciences and The Equity Growth pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.