Correlation Between Health Care and Johnson Institutional

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

Diversification Opportunities for Health Care and Johnson Institutional

-0.07

Correlation Coefficient

Health Care  Johnson Institutional

Good diversification

The 3 months correlation between Health and Johnson is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Ultrasector and Johnson Institutional Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Institutional 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 Johnson Institutional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Institutional has no effect on the direction of Health Care i.e., Health Care and Johnson Institutional go up and down completely randomly.

Pair Corralation between Health Care and Johnson Institutional

Assuming the 90 days horizon Health Care is expected to generate 13.73 times less return on investment than Johnson Institutional. In addition to that, Health Care is 9.72 times more volatile than Johnson Institutional Short. It trades about 0.0 of its total potential returns per unit of risk. Johnson Institutional Short is currently generating about 0.19 per unit of volatility. If you would invest  1,428  in Johnson Institutional Short on October 12, 2024 and sell it today you would earn a total of  56.00  from holding Johnson Institutional Short or generate 3.92% return on investment over 90 days.

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

Health Care Ultrasector  vs.  Johnson Institutional Short

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 weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Johnson Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Institutional Short has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Johnson Institutional 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 Johnson Institutional

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

The idea behind Health Care Ultrasector and Johnson Institutional Short 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.