Correlation Between Health Care and Technology Portfolio

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

Diversification Opportunities for Health Care and Technology Portfolio

0.64

Correlation Coefficient

Health Care  Technology Portfolio

Poor diversification

The 3 months correlation between Health and Technology is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Portfolio and Technology Portfolio Technolog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology 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 Technology Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Portfolio has no effect on the direction of Health Care i.e., Health Care and Technology Portfolio go up and down completely randomly.

Pair Corralation between Health Care and Technology Portfolio

Assuming the 90 days horizon Health Care Portfolio is expected to generate 0.52 times more return on investment than Technology Portfolio. However, Health Care Portfolio is 1.94 times less risky than Technology Portfolio. It trades about -0.01 of its potential returns per unit of risk. Technology Portfolio Technology is currently generating about -0.12 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.  Technology Portfolio Technolog

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.

Technology Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Technology Portfolio Technology 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 basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Health Care and Technology Portfolio

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

The idea behind Health Care Portfolio and Technology Portfolio Technology 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.