Correlation Between Health Care and State Farm

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

Diversification Opportunities for Health Care and State Farm

0.39

Correlation Coefficient

Health Care  State Farm

Weak diversification

The 3 months correlation between Health and State is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Ultrasector and State Farm Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Municipal 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 State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm Municipal has no effect on the direction of Health Care i.e., Health Care and State Farm go up and down completely randomly.

Pair Corralation between Health Care and State Farm

Assuming the 90 days horizon Health Care Ultrasector is expected to under-perform the State Farm. In addition to that, Health Care is 5.17 times more volatile than State Farm Municipal. It trades about -0.2 of its total potential returns per unit of risk. State Farm Municipal is currently generating about -0.07 per unit of volatility. If you would invest  817.00  in State Farm Municipal on October 10, 2024 and sell it today you would lose (8.00) from holding State Farm Municipal or give up 0.98% of portfolio value over 90 days.

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

Health Care Ultrasector  vs.  State Farm Municipal

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.

State Farm Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Health Care Ultrasector and State Farm Municipal 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.