Correlation Between Health Care and Defense And

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

By analyzing existing cross correlation between Health Care Services and Defense And Aerospace, you can compare the effects of market volatilities on Health Care and Defense And 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 Defense And. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Defense And.

Diversification Opportunities for Health Care and Defense And

0.88

Correlation Coefficient

Health Care  Defense And

Very poor diversification

The 3 months correlation between Health and Defense is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Services and Defense And Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defense And Aerospace 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 Services are associated (or correlated) with Defense And. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defense And Aerospace has no effect on the direction of Health Care i.e., Health Care and Defense And go up and down completely randomly.

Pair Corralation between Health Care and Defense And

Assuming the 90 days horizon Health Care Services is expected to under-perform the Defense And. In addition to that, Health Care is 1.63 times more volatile than Defense And Aerospace. It trades about -0.24 of its total potential returns per unit of risk. Defense And Aerospace is currently generating about -0.21 per unit of volatility. If you would invest  1,959  in Defense And Aerospace on October 12, 2024 and sell it today you would lose (127.00) from holding Defense And Aerospace or give up 6.48% of portfolio value over 90 days.

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

Health Care Services  vs.  Defense And Aerospace

Health Care Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Services has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Defense And Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Health Care and Defense And

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

The idea behind Health Care Services and Defense And Aerospace 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.