Correlation Between It Services and Health Care

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

By analyzing existing cross correlation between It Services Portfolio and Health Care Portfolio, you can compare the effects of market volatilities on It Services and Health Care 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 It Services with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of It Services and Health Care.

Diversification Opportunities for It Services and Health Care

-0.29

Correlation Coefficient

It Services  Health Care

Very good diversification

The 3 months correlation between FBSOX and Health is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding It Services Portfolio and Health Care Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Portfolio and It Services 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 It Services Portfolio are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Portfolio has no effect on the direction of It Services i.e., It Services and Health Care go up and down completely randomly.

Pair Corralation between It Services and Health Care

Assuming the 90 days horizon It Services Portfolio is expected to generate 0.93 times more return on investment than Health Care. However, It Services Portfolio is 1.08 times less risky than Health Care. It trades about 0.44 of its potential returns per unit of risk. Health Care Portfolio is currently generating about 0.09 per unit of risk. If you would invest  6,378  in It Services Portfolio on September 4, 2024 and sell it today you would earn a total of  590.00  from holding It Services Portfolio or generate 9.25% return on investment over 90 days.

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

It Services Portfolio  vs.  Health Care Portfolio

It Services Portfolio

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in It Services Portfolio are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, It Services showed solid returns over the last few months and may actually be approaching a breakup point.

Health Care Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, Health Care is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with It Services and Health Care

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

The idea behind It Services Portfolio and Health Care Portfolio 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.