Correlation Between Health Care and Vanguard Health
Can any of the company-specific risk be diversified away by investing in both Health Care and Vanguard Health 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 Vanguard Health 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 Vanguard Health Care, you can compare the effects of market volatilities on Health Care and Vanguard Health 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 Vanguard Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Vanguard Health.
Diversification Opportunities for Health Care and Vanguard Health
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Health and Vanguard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Portfolio and Vanguard Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Health Care 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 Vanguard Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Health Care has no effect on the direction of Health Care i.e., Health Care and Vanguard Health go up and down completely randomly.
Pair Corralation between Health Care and Vanguard Health
Assuming the 90 days horizon Health Care Portfolio is expected to under-perform the Vanguard Health. But the mutual fund apears to be less risky and, when comparing its historical volatility, Health Care Portfolio is 1.09 times less risky than Vanguard Health. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Vanguard Health Care is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest 8,968 in Vanguard Health Care on December 2, 2024 and sell it today you would lose (960.00) from holding Vanguard Health Care or give up 10.7% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Health Care Portfolio vs. Vanguard Health Care
Performance |
Timeline |
Health Care Portfolio |
Vanguard Health Care |
Health Care and Vanguard Health Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Health Care and Vanguard Health
The main advantage of trading using opposite Health Care and Vanguard Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Vanguard Health 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 Vanguard Health will offset losses from the drop in Vanguard Health's long position.Health Care vs. Biotechnology Portfolio Biotechnology | Health Care vs. Technology Portfolio Technology | Health Care vs. Software And It | Health Care vs. Medical Equipment And |
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Check out your portfolio center.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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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