Correlation Between Worldwide Healthcare and Lindsell Train

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

By analyzing existing cross correlation between Worldwide Healthcare Trust and Lindsell Train Investment, you can compare the effects of market volatilities on Worldwide Healthcare and Lindsell Train 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 Worldwide Healthcare with a short position of Lindsell Train. Check out your portfolio center. Please also check ongoing floating volatility patterns of Worldwide Healthcare and Lindsell Train.

Diversification Opportunities for Worldwide Healthcare and Lindsell Train

0.54

Correlation Coefficient

Worldwide Healthcare  Lindsell Train

Very weak diversification

The 3 months correlation between Worldwide and Lindsell is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Worldwide Healthcare Trust and Lindsell Train Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lindsell Train Investment and Worldwide Healthcare 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 Worldwide Healthcare Trust are associated (or correlated) with Lindsell Train. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lindsell Train Investment has no effect on the direction of Worldwide Healthcare i.e., Worldwide Healthcare and Lindsell Train go up and down completely randomly.

Pair Corralation between Worldwide Healthcare and Lindsell Train

Assuming the 90 days trading horizon Worldwide Healthcare Trust is expected to under-perform the Lindsell Train. But the stock apears to be less risky and, when comparing its historical volatility, Worldwide Healthcare Trust is 1.19 times less risky than Lindsell Train. The stock trades about -0.05 of its potential returns per unit of risk. The Lindsell Train Investment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  79,300  in Lindsell Train Investment on December 25, 2024 and sell it today you would earn a total of  3,300  from holding Lindsell Train Investment or generate 4.16% return on investment over 90 days.

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

Worldwide Healthcare Trust  vs.  Lindsell Train Investment

Worldwide Healthcare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Worldwide Healthcare Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Worldwide Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Lindsell Train Investment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lindsell Train Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Lindsell Train is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Worldwide Healthcare and Lindsell Train

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

The idea behind Worldwide Healthcare Trust and Lindsell Train Investment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.