Correlation Between Healthcare and Lens Technology

Can any of the company-specific risk be diversified away by investing in both Healthcare and Lens Technology 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 Healthcare and Lens Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Healthcare Co and Lens Technology Co, you can compare the effects of market volatilities on Healthcare and Lens Technology 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 Healthcare with a short position of Lens Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Healthcare and Lens Technology.

Diversification Opportunities for Healthcare and Lens Technology

0.75

Correlation Coefficient

Healthcare  Lens Technology

Poor diversification

The 3 months correlation between Healthcare and Lens is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Co and Lens Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lens Technology and Healthcare 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 Healthcare Co are associated (or correlated) with Lens Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lens Technology has no effect on the direction of Healthcare i.e., Healthcare and Lens Technology go up and down completely randomly.

Pair Corralation between Healthcare and Lens Technology

Assuming the 90 days trading horizon Healthcare is expected to generate 1.34 times less return on investment than Lens Technology. But when comparing it to its historical volatility, Healthcare Co is 1.4 times less risky than Lens Technology. It trades about 0.18 of its potential returns per unit of risk. Lens Technology Co is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,517  in Lens Technology Co on September 23, 2024 and sell it today you would earn a total of  757.00  from holding Lens Technology Co or generate 49.9% return on investment over 90 days.

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

Healthcare Co  vs.  Lens Technology Co

Healthcare

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Healthcare Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Healthcare sustained solid returns over the last few months and may actually be approaching a breakup point.

Lens Technology

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lens Technology Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lens Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Healthcare and Lens Technology

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

The idea behind Healthcare Co and Lens Technology Co 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.