Correlation Between Brompton North and Global Healthcare

Can any of the company-specific risk be diversified away by investing in both Brompton North and Global Healthcare 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 Brompton North and Global Healthcare into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Brompton North American and Global Healthcare Income, you can compare the effects of market volatilities on Brompton North and Global Healthcare 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 Brompton North with a short position of Global Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton North and Global Healthcare.

Diversification Opportunities for Brompton North and Global Healthcare

-0.22

Correlation Coefficient

Brompton North  Global Healthcare

Very good diversification

The 3 months correlation between Brompton and Global is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Brompton North American and Global Healthcare Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Healthcare Income and Brompton North 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 Brompton North American are associated (or correlated) with Global Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Healthcare Income has no effect on the direction of Brompton North i.e., Brompton North and Global Healthcare go up and down completely randomly.

Pair Corralation between Brompton North and Global Healthcare

Assuming the 90 days trading horizon Brompton North American is expected to generate 0.53 times more return on investment than Global Healthcare. However, Brompton North American is 1.89 times less risky than Global Healthcare. It trades about 0.12 of its potential returns per unit of risk. Global Healthcare Income is currently generating about -0.11 per unit of risk. If you would invest  2,326  in Brompton North American on August 31, 2024 and sell it today you would earn a total of  86.00  from holding Brompton North American or generate 3.7% return on investment over 90 days.

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

Brompton North American  vs.  Global Healthcare Income

Brompton North American

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton North American are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Brompton North is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Global Healthcare Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Healthcare Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest unfluctuating performance, the Fund's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the fund investors.

Pair Trading with Brompton North and Global Healthcare

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

The idea behind Brompton North American and Global Healthcare Income 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.