Correlation Between Rational Dividend and Health Care

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

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

Diversification Opportunities for Rational Dividend and Health Care

0.67

Correlation Coefficient

Rational Dividend  Health Care

Poor diversification

The 3 months correlation between Rational and Health is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Rational Dividend Capture and Health Care Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Fund and Rational Dividend 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 Rational Dividend Capture 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 Fund has no effect on the direction of Rational Dividend i.e., Rational Dividend and Health Care go up and down completely randomly.

Pair Corralation between Rational Dividend and Health Care

Assuming the 90 days horizon Rational Dividend Capture is expected to under-perform the Health Care. But the mutual fund apears to be less risky and, when comparing its historical volatility, Rational Dividend Capture is 1.21 times less risky than Health Care. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Health Care Fund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  8,682  in Health Care Fund on December 21, 2024 and sell it today you would earn a total of  194.00  from holding Health Care Fund or generate 2.23% return on investment over 90 days.

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

Rational Dividend Capture  vs.  Health Care Fund

Rational Dividend Capture

Risk-Adjusted Performance

Very Weak

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

Health Care Fund

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Health Care Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. 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 Rational Dividend and Health Care

The main advantage of trading using opposite Rational Dividend and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rational Dividend 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 Rational Dividend Capture and Health Care Fund 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.