Correlation Between VanEck Biotech and VanEck Pharmaceutical

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

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

Diversification Opportunities for VanEck Biotech and VanEck Pharmaceutical

0.92

Correlation Coefficient

VanEck Biotech  VanEck Pharmaceutical

Almost no diversification

The 3 months correlation between VanEck and VanEck is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Biotech ETF and VanEck Pharmaceutical ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Pharmaceutical ETF and VanEck Biotech 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 VanEck Biotech ETF are associated (or correlated) with VanEck Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Pharmaceutical ETF has no effect on the direction of VanEck Biotech i.e., VanEck Biotech and VanEck Pharmaceutical go up and down completely randomly.

Pair Corralation between VanEck Biotech and VanEck Pharmaceutical

Considering the 90-day investment horizon VanEck Biotech is expected to generate 3.93 times less return on investment than VanEck Pharmaceutical. In addition to that, VanEck Biotech is 1.45 times more volatile than VanEck Pharmaceutical ETF. It trades about 0.01 of its total potential returns per unit of risk. VanEck Pharmaceutical ETF is currently generating about 0.06 per unit of volatility. If you would invest  7,460  in VanEck Pharmaceutical ETF on August 30, 2024 and sell it today you would earn a total of  1,541  from holding VanEck Pharmaceutical ETF or generate 20.66% return on investment over 90 days.

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

VanEck Biotech ETF  vs.  VanEck Pharmaceutical ETF

VanEck Biotech ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Biotech ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Etf's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

VanEck Pharmaceutical ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Pharmaceutical ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Etf's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

Pair Trading with VanEck Biotech and VanEck Pharmaceutical

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

The idea behind VanEck Biotech ETF and VanEck Pharmaceutical ETF 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.