Correlation Between Transportation Portfolio and Health Care

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

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

Diversification Opportunities for Transportation Portfolio and Health Care

0.25

Correlation Coefficient

Transportation Portfolio  Health Care

Modest diversification

The 3 months correlation between Transportation and Health is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Transportation Portfolio Trans and Health Care Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Services and Transportation Portfolio 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 Transportation Portfolio Transportation are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Services has no effect on the direction of Transportation Portfolio i.e., Transportation Portfolio and Health Care go up and down completely randomly.

Pair Corralation between Transportation Portfolio and Health Care

Assuming the 90 days horizon Transportation Portfolio Transportation is expected to under-perform the Health Care. But the mutual fund apears to be less risky and, when comparing its historical volatility, Transportation Portfolio Transportation is 1.3 times less risky than Health Care. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Health Care Services is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  11,110  in Health Care Services on December 23, 2024 and sell it today you would earn a total of  21.00  from holding Health Care Services or generate 0.19% return on investment over 90 days.

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

Transportation Portfolio Trans  vs.  Health Care Services

Transportation Portfolio

Risk-Adjusted Performance

Very Weak

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

Health Care Services

Risk-Adjusted Performance

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 fairly strong fundamental indicators, Health Care is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Transportation Portfolio and Health Care

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

The idea behind Transportation Portfolio Transportation and Health Care Services 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.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.