Correlation Between IShares Healthcare and Health Care

Can any of the company-specific risk be diversified away by investing in both IShares Healthcare 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 Healthcare 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 Healthcare ETF and Health Care Select, you can compare the effects of market volatilities on IShares Healthcare 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 Healthcare with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Healthcare and Health Care.

Diversification Opportunities for IShares Healthcare and Health Care

1.0

Correlation Coefficient

IShares Healthcare  Health Care

No risk reduction

The 3 months correlation between IShares and Health is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Healthcare ETF 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 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 iShares Healthcare ETF 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 Healthcare i.e., IShares Healthcare and Health Care go up and down completely randomly.

Pair Corralation between IShares Healthcare and Health Care

Considering the 90-day investment horizon iShares Healthcare ETF is expected to generate 1.02 times more return on investment than Health Care. However, IShares Healthcare is 1.02 times more volatile than Health Care Select. It trades about -0.13 of its potential returns per unit of risk. Health Care Select is currently generating about -0.14 per unit of risk. If you would invest  6,590  in iShares Healthcare ETF on September 3, 2024 and sell it today you would lose (378.00) from holding iShares Healthcare ETF or give up 5.74% of portfolio value over 90 days.

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

iShares Healthcare ETF  vs.  Health Care Select

iShares Healthcare ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Healthcare ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, IShares Healthcare is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Health Care Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Health Care is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Healthcare and Health Care

The main advantage of trading using opposite IShares Healthcare and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Healthcare 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 Healthcare ETF 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 CEOs Directory module to screen CEOs from public companies around the world.