Correlation Between Health Biotchnology and Schwab Health

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

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

Diversification Opportunities for Health Biotchnology and Schwab Health

0.86

Correlation Coefficient

Health Biotchnology  Schwab Health

Very poor diversification

The 3 months correlation between Health and Schwab is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Health Biotchnology Portfolio and Schwab Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Health Care and Health Biotchnology 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 Biotchnology Portfolio are associated (or correlated) with Schwab Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Health Care has no effect on the direction of Health Biotchnology i.e., Health Biotchnology and Schwab Health go up and down completely randomly.

Pair Corralation between Health Biotchnology and Schwab Health

Assuming the 90 days horizon Health Biotchnology Portfolio is expected to generate 0.63 times more return on investment than Schwab Health. However, Health Biotchnology Portfolio is 1.59 times less risky than Schwab Health. It trades about -0.18 of its potential returns per unit of risk. Schwab Health Care is currently generating about -0.25 per unit of risk. If you would invest  2,505  in Health Biotchnology Portfolio on September 26, 2024 and sell it today you would lose (216.00) from holding Health Biotchnology Portfolio or give up 8.62% of portfolio value over 90 days.

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

Health Biotchnology Portfolio  vs.  Schwab Health Care

Health Biotchnology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Schwab Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Health Care has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Health Biotchnology and Schwab Health

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

The idea behind Health Biotchnology Portfolio and Schwab 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.