Correlation Between Health Care and SPDR SP

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

Diversification Opportunities for Health Care and SPDR SP

-0.8

Correlation Coefficient

Health Care  SPDR SP

Pay attention - limited upside

The 3 months correlation between Health and SPDR is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and SPDR SP Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Software 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Software has no effect on the direction of Health Care i.e., Health Care and SPDR SP go up and down completely randomly.

Pair Corralation between Health Care and SPDR SP

Considering the 90-day investment horizon Health Care Select is expected to under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, Health Care Select is 2.53 times less risky than SPDR SP. The etf trades about -0.35 of its potential returns per unit of risk. The SPDR SP Software is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  19,393  in SPDR SP Software on September 28, 2024 and sell it today you would earn a total of  321.00  from holding SPDR SP Software or generate 1.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Health Care Select  vs.  SPDR SP Software

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.

SPDR SP Software

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Software are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, SPDR SP showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Health Care and SPDR SP

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

The idea behind Health Care Select and SPDR SP Software 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.