Correlation Between Small Cap and Tekla Healthcare

Can any of the company-specific risk be diversified away by investing in both Small Cap and Tekla Healthcare 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 Small Cap and Tekla Healthcare into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Core and Tekla Healthcare Opportunities, you can compare the effects of market volatilities on Small Cap and Tekla Healthcare 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 Small Cap with a short position of Tekla Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Tekla Healthcare.

Diversification Opportunities for Small Cap and Tekla Healthcare

0.3

Correlation Coefficient

Small Cap  Tekla Healthcare

Weak diversification

The 3 months correlation between Small and Tekla is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Tekla Healthcare Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tekla Healthcare Opp and Small Cap 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 Small Cap Core are associated (or correlated) with Tekla Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tekla Healthcare Opp has no effect on the direction of Small Cap i.e., Small Cap and Tekla Healthcare go up and down completely randomly.

Pair Corralation between Small Cap and Tekla Healthcare

Assuming the 90 days horizon Small Cap Core is expected to under-perform the Tekla Healthcare. In addition to that, Small Cap is 2.2 times more volatile than Tekla Healthcare Opportunities. It trades about -0.35 of its total potential returns per unit of risk. Tekla Healthcare Opportunities is currently generating about -0.22 per unit of volatility. If you would invest  1,983  in Tekla Healthcare Opportunities on September 23, 2024 and sell it today you would lose (112.00) from holding Tekla Healthcare Opportunities or give up 5.65% of portfolio value over 90 days.

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

Small Cap Core  vs.  Tekla Healthcare Opportunities

Small Cap Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Tekla Healthcare Opp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tekla Healthcare Opportunities has generated negative risk-adjusted returns adding no value to fund investors. Even with inconsistent performance in the last few months, the Fund's technical indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the fund retail investors.

Pair Trading with Small Cap and Tekla Healthcare

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

The idea behind Small Cap Core and Tekla Healthcare Opportunities 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.