Correlation Between Health Care and Themes Transatlantic

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

Diversification Opportunities for Health Care and Themes Transatlantic

0.69

Correlation Coefficient

Health Care  Themes Transatlantic

Poor diversification

The 3 months correlation between Health and Themes is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and Themes Transatlantic Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Themes Transatlantic 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 Themes Transatlantic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Themes Transatlantic has no effect on the direction of Health Care i.e., Health Care and Themes Transatlantic go up and down completely randomly.

Pair Corralation between Health Care and Themes Transatlantic

Considering the 90-day investment horizon Health Care is expected to generate 2.24 times less return on investment than Themes Transatlantic. But when comparing it to its historical volatility, Health Care Select is 1.58 times less risky than Themes Transatlantic. It trades about 0.15 of its potential returns per unit of risk. Themes Transatlantic Defense is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,561  in Themes Transatlantic Defense on December 20, 2024 and sell it today you would earn a total of  413.00  from holding Themes Transatlantic Defense or generate 16.13% return on investment over 90 days.

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

Health Care Select  vs.  Themes Transatlantic Defense

Health Care Select

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Health Care Select are ranked lower than 11 (%) 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.

Themes Transatlantic

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Themes Transatlantic Defense are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Themes Transatlantic displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Health Care and Themes Transatlantic

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

The idea behind Health Care Select and Themes Transatlantic Defense 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..