Correlation Between Health Care and Fidelity Advisor

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

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

Diversification Opportunities for Health Care and Fidelity Advisor

0.88

Correlation Coefficient

Health Care  Fidelity Advisor

Very poor diversification

The 3 months correlation between HEALTH and Fidelity is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Fidelity Advisor Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Health 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 Fund are associated (or correlated) with Fidelity Advisor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Advisor Health has no effect on the direction of Health Care i.e., Health Care and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Health Care and Fidelity Advisor

Assuming the 90 days horizon Health Care Fund is expected to under-perform the Fidelity Advisor. But the mutual fund apears to be less risky and, when comparing its historical volatility, Health Care Fund is 1.18 times less risky than Fidelity Advisor. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Fidelity Advisor Health is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  4,965  in Fidelity Advisor Health on August 31, 2024 and sell it today you would lose (48.00) from holding Fidelity Advisor Health or give up 0.97% of portfolio value over 90 days.

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

Health Care Fund  vs.  Fidelity Advisor Health

Health Care Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Fund 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.

Fidelity Advisor Health

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Health Care and Fidelity Advisor

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

The idea behind Health Care Fund and Fidelity Advisor Health 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.