Correlation Between Vanguard Health and Franklin Biotechnology

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

By analyzing existing cross correlation between Vanguard Health Care and Franklin Biotechnology Discovery, you can compare the effects of market volatilities on Vanguard Health and Franklin 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 Vanguard Health with a short position of Franklin Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Health and Franklin Biotechnology.

Diversification Opportunities for Vanguard Health and Franklin Biotechnology

0.73

Correlation Coefficient

Vanguard Health  Franklin Biotechnology

Poor diversification

The 3 months correlation between Vanguard and Franklin is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and Franklin Biotechnology Discove in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Biotechnology and Vanguard Health 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 Vanguard Health Care are associated (or correlated) with Franklin Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Biotechnology has no effect on the direction of Vanguard Health i.e., Vanguard Health and Franklin Biotechnology go up and down completely randomly.

Pair Corralation between Vanguard Health and Franklin Biotechnology

Assuming the 90 days horizon Vanguard Health Care is expected to generate 0.63 times more return on investment than Franklin Biotechnology. However, Vanguard Health Care is 1.6 times less risky than Franklin Biotechnology. It trades about -0.19 of its potential returns per unit of risk. Franklin Biotechnology Discovery is currently generating about -0.24 per unit of risk. If you would invest  9,211  in Vanguard Health Care on September 12, 2024 and sell it today you would lose (374.00) from holding Vanguard Health Care or give up 4.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Vanguard Health Care  vs.  Franklin Biotechnology Discove

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Biotechnology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Health and Franklin Biotechnology

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

The idea behind Vanguard Health Care and Franklin Biotechnology Discovery 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.