Correlation Between Global Healthcare and Capital Group

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

By analyzing existing cross correlation between Global Healthcare Income and Capital Group Global, you can compare the effects of market volatilities on Global Healthcare and Capital Group 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 Global Healthcare with a short position of Capital Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Healthcare and Capital Group.

Diversification Opportunities for Global Healthcare and Capital Group

0.35

Correlation Coefficient

Global Healthcare  Capital Group

Weak diversification

The 3 months correlation between Global and Capital is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Global Healthcare Income and Capital Group Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Global and Global Healthcare 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 Global Healthcare Income are associated (or correlated) with Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Global has no effect on the direction of Global Healthcare i.e., Global Healthcare and Capital Group go up and down completely randomly.

Pair Corralation between Global Healthcare and Capital Group

Assuming the 90 days trading horizon Global Healthcare Income is expected to under-perform the Capital Group. But the fund apears to be less risky and, when comparing its historical volatility, Global Healthcare Income is 1.02 times less risky than Capital Group. The fund trades about -0.01 of its potential returns per unit of risk. The Capital Group Global is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,178  in Capital Group Global on December 1, 2024 and sell it today you would earn a total of  17.00  from holding Capital Group Global or generate 0.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.55%
Values	Daily Returns

Global Healthcare Income  vs.  Capital Group Global

Global Healthcare Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Healthcare Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy technical and fundamental indicators, Global Healthcare is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Capital Group Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital Group Global has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong technical and fundamental indicators, Capital Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global Healthcare and Capital Group

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

The idea behind Global Healthcare Income and Capital Group Global 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.