Correlation Between Health Care and Absolute Capital

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

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

Diversification Opportunities for Health Care and Absolute Capital

0.26

Correlation Coefficient

Health Care  Absolute Capital

Modest diversification

The 3 months correlation between Health and Absolute is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Ultrasector and Absolute Capital Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Capital Asset 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 Ultrasector are associated (or correlated) with Absolute Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Capital Asset has no effect on the direction of Health Care i.e., Health Care and Absolute Capital go up and down completely randomly.

Pair Corralation between Health Care and Absolute Capital

Assuming the 90 days horizon Health Care is expected to generate 1.83 times less return on investment than Absolute Capital. In addition to that, Health Care is 1.74 times more volatile than Absolute Capital Asset. It trades about 0.02 of its total potential returns per unit of risk. Absolute Capital Asset is currently generating about 0.07 per unit of volatility. If you would invest  918.00  in Absolute Capital Asset on October 26, 2024 and sell it today you would earn a total of  194.00  from holding Absolute Capital Asset or generate 21.13% return on investment over 90 days.

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

Health Care Ultrasector  vs.  Absolute Capital Asset

Health Care Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

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

Absolute Capital Asset

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Capital Asset are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Absolute Capital 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 Absolute Capital

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

The idea behind Health Care Ultrasector and Absolute Capital Asset 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 Stocks Directory module to find actively traded stocks across global markets.