Correlation Between Health Biotchnology and Large Capitalization

Can any of the company-specific risk be diversified away by investing in both Health Biotchnology and Large Capitalization 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 Large Capitalization 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 Large Capitalization Growth, you can compare the effects of market volatilities on Health Biotchnology and Large Capitalization 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 Large Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Biotchnology and Large Capitalization.

Diversification Opportunities for Health Biotchnology and Large Capitalization

0.01

Correlation Coefficient

Health Biotchnology  Large Capitalization

Significant diversification

The 3 months correlation between Health and Large is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Health Biotchnology Portfolio and Large Capitalization Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capitalization 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 Large Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Capitalization has no effect on the direction of Health Biotchnology i.e., Health Biotchnology and Large Capitalization go up and down completely randomly.

Pair Corralation between Health Biotchnology and Large Capitalization

Assuming the 90 days horizon Health Biotchnology Portfolio is expected to generate 0.51 times more return on investment than Large Capitalization. However, Health Biotchnology Portfolio is 1.98 times less risky than Large Capitalization. It trades about 0.06 of its potential returns per unit of risk. Large Capitalization Growth is currently generating about -0.08 per unit of risk. If you would invest  1,261  in Health Biotchnology Portfolio on December 29, 2024 and sell it today you would earn a total of  36.00  from holding Health Biotchnology Portfolio or generate 2.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Health Biotchnology Portfolio  vs.  Large Capitalization Growth

Health Biotchnology

Risk-Adjusted Performance

Insignificant

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

Large Capitalization

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Capitalization Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Health Biotchnology and Large Capitalization

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

The idea behind Health Biotchnology Portfolio and Large Capitalization 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.