Correlation Between Health Care and Vanguard Health

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

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

Diversification Opportunities for Health Care and Vanguard Health

0.67

Correlation Coefficient

Health Care  Vanguard Health

Poor diversification

The 3 months correlation between Health and Vanguard is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Portfolio and Vanguard Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Health Care 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 Portfolio are associated (or correlated) with Vanguard Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Health Care has no effect on the direction of Health Care i.e., Health Care and Vanguard Health go up and down completely randomly.

Pair Corralation between Health Care and Vanguard Health

Assuming the 90 days horizon Health Care Portfolio is expected to generate 1.14 times more return on investment than Vanguard Health. However, Health Care is 1.14 times more volatile than Vanguard Health Care. It trades about 0.0 of its potential returns per unit of risk. Vanguard Health Care is currently generating about -0.2 per unit of risk. If you would invest  3,157  in Health Care Portfolio on September 3, 2024 and sell it today you would earn a total of  0.00  from holding Health Care Portfolio or generate 0.0% return on investment over 90 days.

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

Health Care Portfolio  vs.  Vanguard Health Care

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.

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Health Care has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Health Care and Vanguard Health

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

The idea behind Health Care Portfolio and Vanguard Health Care 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.