Correlation Between Health Care and Computers Portfolio

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

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

Diversification Opportunities for Health Care and Computers Portfolio

0.73

Correlation Coefficient

Health Care  Computers Portfolio

Poor diversification

The 3 months correlation between Health and Computers is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Portfolio and Computers Portfolio Puters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computers 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 Portfolio are associated (or correlated) with Computers Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computers Portfolio has no effect on the direction of Health Care i.e., Health Care and Computers Portfolio go up and down completely randomly.

Pair Corralation between Health Care and Computers Portfolio

Assuming the 90 days horizon Health Care Portfolio is expected to generate 0.7 times more return on investment than Computers Portfolio. However, Health Care Portfolio is 1.43 times less risky than Computers Portfolio. It trades about -0.01 of its potential returns per unit of risk. Computers Portfolio Puters is currently generating about -0.03 per unit of risk. If you would invest  2,727  in Health Care Portfolio on December 30, 2024 and sell it today you would lose (18.00) from holding Health Care Portfolio or give up 0.66% of portfolio value over 90 days.

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

Health Care Portfolio  vs.  Computers Portfolio Puters

Health Care Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Health Care Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, Health Care is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Computers Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Computers Portfolio Puters has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Computers Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Health Care and Computers Portfolio

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

The idea behind Health Care Portfolio and Computers Portfolio Puters 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.