Correlation Between Health Care and Retailing Portfolio

Can any of the company-specific risk be diversified away by investing in both Health Care and Retailing Portfolio 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 Retailing Portfolio 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 Retailing Portfolio Retailing, you can compare the effects of market volatilities on Health Care and Retailing Portfolio 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 Retailing Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Retailing Portfolio.

Diversification Opportunities for Health Care and Retailing Portfolio

0.08

Correlation Coefficient

Health Care  Retailing Portfolio

Significant diversification

The 3 months correlation between Health and Retailing is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Services and Retailing Portfolio Retailing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retailing Portfolio 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 Retailing Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retailing Portfolio has no effect on the direction of Health Care i.e., Health Care and Retailing Portfolio go up and down completely randomly.

Pair Corralation between Health Care and Retailing Portfolio

Assuming the 90 days horizon Health Care Services is expected to under-perform the Retailing Portfolio. In addition to that, Health Care is 1.52 times more volatile than Retailing Portfolio Retailing. It trades about -0.09 of its total potential returns per unit of risk. Retailing Portfolio Retailing is currently generating about 0.1 per unit of volatility. If you would invest  2,025  in Retailing Portfolio Retailing on October 27, 2024 and sell it today you would earn a total of  138.00  from holding Retailing Portfolio Retailing or generate 6.81% return on investment over 90 days.

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

Health Care Services  vs.  Retailing Portfolio Retailing

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 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.

Retailing Portfolio

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Retailing Portfolio Retailing are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Retailing Portfolio may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Health Care and Retailing Portfolio

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

The idea behind Health Care Services and Retailing Portfolio Retailing 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.