Correlation Between Health Care and WisdomTree BioRevolution

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

Diversification Opportunities for Health Care and WisdomTree BioRevolution

-0.24

Correlation Coefficient

Health Care  WisdomTree BioRevolution

Very good diversification

The 3 months correlation between Health and WisdomTree is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and WisdomTree BioRevolution in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree BioRevolution 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 WisdomTree BioRevolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree BioRevolution has no effect on the direction of Health Care i.e., Health Care and WisdomTree BioRevolution go up and down completely randomly.

Pair Corralation between Health Care and WisdomTree BioRevolution

Considering the 90-day investment horizon Health Care Select is expected to generate 0.6 times more return on investment than WisdomTree BioRevolution. However, Health Care Select is 1.68 times less risky than WisdomTree BioRevolution. It trades about 0.12 of its potential returns per unit of risk. WisdomTree BioRevolution is currently generating about -0.11 per unit of risk. If you would invest  13,671  in Health Care Select on December 30, 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Health Care Select  vs.  WisdomTree BioRevolution

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.

WisdomTree BioRevolution

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree BioRevolution has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Health Care and WisdomTree BioRevolution

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

The idea behind Health Care Select and WisdomTree BioRevolution 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.