Correlation Between Health Care and Leisure Fund

Can any of the company-specific risk be diversified away by investing in both Health Care and Leisure Fund 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 Leisure Fund 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 Leisure Fund Class, you can compare the effects of market volatilities on Health Care and Leisure Fund 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 Leisure Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Leisure Fund.

Diversification Opportunities for Health Care and Leisure Fund

-0.78

Correlation Coefficient

Health Care  Leisure Fund

Pay attention - limited upside

The 3 months correlation between Health and Leisure is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Leisure Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leisure Fund Class 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 Leisure Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leisure Fund Class has no effect on the direction of Health Care i.e., Health Care and Leisure Fund go up and down completely randomly.

Pair Corralation between Health Care and Leisure Fund

Assuming the 90 days horizon Health Care Fund is expected to under-perform the Leisure Fund. In addition to that, Health Care is 1.03 times more volatile than Leisure Fund Class. It trades about -0.08 of its total potential returns per unit of risk. Leisure Fund Class is currently generating about 0.37 per unit of volatility. If you would invest  6,223  in Leisure Fund Class on September 2, 2024 and sell it today you would earn a total of  1,122  from holding Leisure Fund Class or generate 18.03% return on investment over 90 days.

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

Health Care Fund  vs.  Leisure Fund Class

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 forward indicators, Health Care is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Leisure Fund Class

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Leisure Fund Class are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Leisure Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Health Care and Leisure Fund

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

The idea behind Health Care Fund and Leisure Fund Class 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.