Correlation Between Health Care and Financial Select

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

Diversification Opportunities for Health Care and Financial Select

-0.78

Correlation Coefficient

Health Care  Financial Select

Pay attention - limited upside

The 3 months correlation between Health and Financial is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector 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 Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of Health Care i.e., Health Care and Financial Select go up and down completely randomly.

Pair Corralation between Health Care and Financial Select

Considering the 90-day investment horizon Health Care Select is expected to under-perform the Financial Select. In addition to that, Health Care is 1.08 times more volatile than Financial Select Sector. It trades about -0.13 of its total potential returns per unit of risk. Financial Select Sector is currently generating about -0.14 per unit of volatility. If you would invest  5,002  in Financial Select Sector on September 18, 2024 and sell it today you would lose (92.00) from holding Financial Select Sector or give up 1.84% of portfolio value over 90 days.

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

Health Care Select  vs.  Financial Select Sector

Health Care Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's essential indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Financial Select Sector

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, Financial Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Health Care and Financial Select

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

The idea behind Health Care Select and Financial Select Sector 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.