Correlation Between Vanguard Health and Health Care

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

Diversification Opportunities for Vanguard Health and Health Care

0.68

Correlation Coefficient

Vanguard Health  Health Care

Poor diversification

The 3 months correlation between Vanguard and Health is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and Health Care Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Portfolio 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 Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Portfolio has no effect on the direction of Vanguard Health i.e., Vanguard Health and Health Care go up and down completely randomly.

Pair Corralation between Vanguard Health and Health Care

Assuming the 90 days horizon Vanguard Health Care is expected to under-perform the Health Care. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Health Care is 1.15 times less risky than Health Care. The mutual fund trades about -0.22 of its potential returns per unit of risk. The Health Care Portfolio is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,183  in Health Care Portfolio on September 13, 2024 and sell it today you would lose (91.00) from holding Health Care Portfolio or give up 2.86% of portfolio value over 90 days.

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

Vanguard Health Care  vs.  Health Care Portfolio

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.

Health Care Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, Health Care 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 Health Care

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

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