Correlation Between IShares Biotechnology and IShares Healthcare

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

By analyzing existing cross correlation between iShares Biotechnology ETF and iShares Healthcare Providers, you can compare the effects of market volatilities on IShares Biotechnology and IShares Healthcare 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 IShares Biotechnology with a short position of IShares Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Biotechnology and IShares Healthcare.

Diversification Opportunities for IShares Biotechnology and IShares Healthcare

0.67

Correlation Coefficient

IShares Biotechnology  IShares Healthcare

Poor diversification

The 3 months correlation between IShares and IShares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding iShares Biotechnology ETF and iShares Healthcare Providers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Healthcare and IShares Biotechnology 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 iShares Biotechnology ETF are associated (or correlated) with IShares Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Healthcare has no effect on the direction of IShares Biotechnology i.e., IShares Biotechnology and IShares Healthcare go up and down completely randomly.

Pair Corralation between IShares Biotechnology and IShares Healthcare

Considering the 90-day investment horizon iShares Biotechnology ETF is expected to generate 1.06 times more return on investment than IShares Healthcare. However, IShares Biotechnology is 1.06 times more volatile than iShares Healthcare Providers. It trades about -0.03 of its potential returns per unit of risk. iShares Healthcare Providers is currently generating about -0.09 per unit of risk. If you would invest  14,546  in iShares Biotechnology ETF on September 1, 2024 and sell it today you would lose (391.00) from holding iShares Biotechnology ETF or give up 2.69% of portfolio value over 90 days.

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

iShares Biotechnology ETF  vs.  iShares Healthcare Providers

iShares Biotechnology ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Biotechnology ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, IShares Biotechnology is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

iShares Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Healthcare Providers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Etf's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with IShares Biotechnology and IShares Healthcare

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

The idea behind iShares Biotechnology ETF and iShares Healthcare Providers 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.