Correlation Between Health Care and First Trust

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

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

Diversification Opportunities for Health Care and First Trust

-0.1

Correlation Coefficient

Health Care  First Trust

Good diversification

The 3 months correlation between Health and First is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and Health Care 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 Care Select are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Nasdaq has no effect on the direction of Health Care i.e., Health Care and First Trust go up and down completely randomly.

Pair Corralation between Health Care and First Trust

Considering the 90-day investment horizon Health Care Select is expected to generate 0.51 times more return on investment than First Trust. However, Health Care Select is 1.98 times less risky than First Trust. It trades about 0.13 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about -0.05 per unit of risk. If you would invest  13,671  in Health Care Select on December 28, 2024 and sell it today you would earn a total of  826.00  from holding Health Care Select or generate 6.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Health Care Select  vs.  First Trust Nasdaq

Health Care Select

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Health Care Select are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Health Care may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Trust Nasdaq

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Nasdaq has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Health Care and First Trust

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

The idea behind Health Care Select and First Trust Nasdaq 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.

Check out your portfolio center.

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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.