Correlation Between Health Care and IShares Healthcare

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

Diversification Opportunities for Health Care and IShares Healthcare

0.98

Correlation Coefficient

Health Care  IShares Healthcare

Almost no diversification

The 3 months correlation between Health and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and iShares Healthcare ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Healthcare ETF 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 IShares Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Healthcare ETF has no effect on the direction of Health Care i.e., Health Care and IShares Healthcare go up and down completely randomly.

Pair Corralation between Health Care and IShares Healthcare

Considering the 90-day investment horizon Health Care Select is expected to generate 0.99 times more return on investment than IShares Healthcare. However, Health Care Select is 1.01 times less risky than IShares Healthcare. It trades about 0.12 of its potential returns per unit of risk. iShares Healthcare ETF is currently generating about 0.09 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  781.00  from holding Health Care Select or generate 5.71% return on investment over 90 days.

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

Health Care Select  vs.  iShares Healthcare ETF

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 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable essential indicators, Health Care is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Healthcare ETF

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Healthcare ETF are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, IShares Healthcare is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Health Care and IShares Healthcare

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

The idea behind Health Care Select and iShares Healthcare ETF 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.