Correlation Between IShares Core and Health Care

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

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

Diversification Opportunities for IShares Core and Health Care

-0.5

Correlation Coefficient

IShares Core  Health Care

Very good diversification

The 3 months correlation between IShares and Health is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select and IShares Core 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 Core SP 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 Select has no effect on the direction of IShares Core i.e., IShares Core and Health Care go up and down completely randomly.

Pair Corralation between IShares Core and Health Care

Considering the 90-day investment horizon iShares Core SP is expected to generate 1.13 times more return on investment than Health Care. However, IShares Core is 1.13 times more volatile than Health Care Select. It trades about 0.11 of its potential returns per unit of risk. Health Care Select is currently generating about 0.01 per unit of risk. If you would invest  38,616  in iShares Core SP on October 11, 2024 and sell it today you would earn a total of  20,603  from holding iShares Core SP or generate 53.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

iShares Core SP  vs.  Health Care Select

Pair Trading with IShares Core and Health Care

The main advantage of trading using opposite IShares Core and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 iShares Core SP and Health Care Select 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.