Correlation Between National Health and Arca Continental

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

By analyzing existing cross correlation between National Health Scan and Arca Continental SAB, you can compare the effects of market volatilities on National Health and Arca Continental 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 National Health with a short position of Arca Continental. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Health and Arca Continental.

Diversification Opportunities for National Health and Arca Continental

-0.33

Correlation Coefficient

National Health  Arca Continental

Very good diversification

The 3 months correlation between National and Arca is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding National Health Scan and Arca Continental SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arca Continental SAB and National Health 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 National Health Scan are associated (or correlated) with Arca Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arca Continental SAB has no effect on the direction of National Health i.e., National Health and Arca Continental go up and down completely randomly.

Pair Corralation between National Health and Arca Continental

Given the investment horizon of 90 days National Health Scan is expected to under-perform the Arca Continental. In addition to that, National Health is 12.81 times more volatile than Arca Continental SAB. It trades about -0.02 of its total potential returns per unit of risk. Arca Continental SAB is currently generating about 0.29 per unit of volatility. If you would invest  890.00  in Arca Continental SAB on December 4, 2024 and sell it today you would earn a total of  130.00  from holding Arca Continental SAB or generate 14.61% return on investment over 90 days.

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

National Health Scan  vs.  Arca Continental SAB

National Health Scan

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Health Scan has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively unsteady technical and fundamental indicators, National Health reported solid returns over the last few months and may actually be approaching a breakup point.

Arca Continental SAB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arca Continental SAB are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Arca Continental reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Health and Arca Continental

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

The idea behind National Health Scan and Arca Continental SAB 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.