Correlation Between Horizon Kinetics and IShares Biotechnology

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

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

Diversification Opportunities for Horizon Kinetics and IShares Biotechnology

0.7

Correlation Coefficient

Horizon Kinetics  IShares Biotechnology

Poor diversification

The 3 months correlation between Horizon and IShares is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Horizon Kinetics Medical and iShares Biotechnology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Biotechnology ETF and Horizon Kinetics 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 Horizon Kinetics Medical are associated (or correlated) with IShares Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Biotechnology ETF has no effect on the direction of Horizon Kinetics i.e., Horizon Kinetics and IShares Biotechnology go up and down completely randomly.

Pair Corralation between Horizon Kinetics and IShares Biotechnology

Given the investment horizon of 90 days Horizon Kinetics Medical is expected to generate 0.82 times more return on investment than IShares Biotechnology. However, Horizon Kinetics Medical is 1.21 times less risky than IShares Biotechnology. It trades about 0.06 of its potential returns per unit of risk. iShares Biotechnology ETF is currently generating about -0.07 per unit of risk. If you would invest  2,785  in Horizon Kinetics Medical on December 4, 2024 and sell it today you would earn a total of  85.00  from holding Horizon Kinetics Medical or generate 3.05% return on investment over 90 days.

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

Horizon Kinetics Medical  vs.  iShares Biotechnology ETF

Horizon Kinetics Medical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Horizon Kinetics Medical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Horizon Kinetics is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares Biotechnology ETF

Risk-Adjusted Performance

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.

Pair Trading with Horizon Kinetics and IShares Biotechnology

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

The idea behind Horizon Kinetics Medical and iShares Biotechnology ETF 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.