Correlation Between Moderately Aggressive and Health Biotchnology

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

By analyzing existing cross correlation between Moderately Aggressive Balanced and Health Biotchnology Portfolio, you can compare the effects of market volatilities on Moderately Aggressive and Health Biotchnology 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 Moderately Aggressive with a short position of Health Biotchnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderately Aggressive and Health Biotchnology.

Diversification Opportunities for Moderately Aggressive and Health Biotchnology

0.46

Correlation Coefficient

Moderately Aggressive  Health Biotchnology

Very weak diversification

The 3 months correlation between Moderately and Health is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and Health Biotchnology Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Biotchnology and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with Health Biotchnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Biotchnology has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and Health Biotchnology go up and down completely randomly.

Pair Corralation between Moderately Aggressive and Health Biotchnology

Assuming the 90 days horizon Moderately Aggressive Balanced is expected to under-perform the Health Biotchnology. But the mutual fund apears to be less risky and, when comparing its historical volatility, Moderately Aggressive Balanced is 1.18 times less risky than Health Biotchnology. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Health Biotchnology Portfolio is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,459  in Health Biotchnology Portfolio on November 30, 2024 and sell it today you would lose (79.00) from holding Health Biotchnology Portfolio or give up 3.21% of portfolio value over 90 days.

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

Moderately Aggressive Balanced  vs.  Health Biotchnology Portfolio

Moderately Aggressive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Moderately Aggressive Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Moderately Aggressive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Health Biotchnology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Health Biotchnology Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Health Biotchnology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Moderately Aggressive and Health Biotchnology

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

The idea behind Moderately Aggressive Balanced and Health Biotchnology Portfolio 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.