Correlation Between Health Care and Transportation Portfolio

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

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

Diversification Opportunities for Health Care and Transportation Portfolio

-0.61

Correlation Coefficient

Health Care  Transportation Portfolio

Excellent diversification

The 3 months correlation between Health and Transportation is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Services and Transportation Portfolio Trans in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportation Portfolio 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 Services are associated (or correlated) with Transportation Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportation Portfolio has no effect on the direction of Health Care i.e., Health Care and Transportation Portfolio go up and down completely randomly.

Pair Corralation between Health Care and Transportation Portfolio

Assuming the 90 days horizon Health Care Services is expected to under-perform the Transportation Portfolio. But the mutual fund apears to be less risky and, when comparing its historical volatility, Health Care Services is 1.03 times less risky than Transportation Portfolio. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Transportation Portfolio Transportation is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  10,809  in Transportation Portfolio Transportation on September 1, 2024 and sell it today you would earn a total of  1,212  from holding Transportation Portfolio Transportation or generate 11.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Health Care Services  vs.  Transportation Portfolio Trans

Health Care Services

Risk-Adjusted Performance

0 of 100

Very Weak

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

Transportation Portfolio

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transportation Portfolio Transportation are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Transportation Portfolio may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Health Care and Transportation Portfolio

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

The idea behind Health Care Services and Transportation Portfolio Transportation 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 Anywhere module to track or share privately all of your investments from the convenience of any device.