Correlation Between Health Biotchnology and Hartford Growth

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

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

Diversification Opportunities for Health Biotchnology and Hartford Growth

-0.29

Correlation Coefficient

Health Biotchnology  Hartford Growth

Very good diversification

The 3 months correlation between Health and Hartford is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Health Biotchnology Portfolio and The Hartford Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Growth and Health Biotchnology 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 Health Biotchnology Portfolio are associated (or correlated) with Hartford Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Growth has no effect on the direction of Health Biotchnology i.e., Health Biotchnology and Hartford Growth go up and down completely randomly.

Pair Corralation between Health Biotchnology and Hartford Growth

Assuming the 90 days horizon Health Biotchnology Portfolio is expected to under-perform the Hartford Growth. But the mutual fund apears to be less risky and, when comparing its historical volatility, Health Biotchnology Portfolio is 1.76 times less risky than Hartford Growth. The mutual fund trades about -0.06 of its potential returns per unit of risk. The The Hartford Growth is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  6,638  in The Hartford Growth on November 28, 2024 and sell it today you would lose (86.00) from holding The Hartford Growth or give up 1.3% of portfolio value over 90 days.

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

Health Biotchnology Portfolio  vs.  The Hartford Growth

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.

Hartford Growth

Risk-Adjusted Performance

Weak

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

Pair Trading with Health Biotchnology and Hartford Growth

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

The idea behind Health Biotchnology Portfolio and The Hartford Growth 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.