Correlation Between Health Biotchnology and Aggressive Balanced

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

Diversification Opportunities for Health Biotchnology and Aggressive Balanced

-0.47

Correlation Coefficient

Health Biotchnology  Aggressive Balanced

Very good diversification

The 3 months correlation between HEALTH and Aggressive is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Health Biotchnology Portfolio and Aggressive Balanced Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Balanced 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 Aggressive Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Balanced has no effect on the direction of Health Biotchnology i.e., Health Biotchnology and Aggressive Balanced go up and down completely randomly.

Pair Corralation between Health Biotchnology and Aggressive Balanced

Assuming the 90 days horizon Health Biotchnology Portfolio is expected to under-perform the Aggressive Balanced. In addition to that, Health Biotchnology is 1.4 times more volatile than Aggressive Balanced Allocation. It trades about -0.1 of its total potential returns per unit of risk. Aggressive Balanced Allocation is currently generating about 0.22 per unit of volatility. If you would invest  1,166  in Aggressive Balanced Allocation on September 3, 2024 and sell it today you would earn a total of  93.00  from holding Aggressive Balanced Allocation or generate 7.98% return on investment over 90 days.

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

Health Biotchnology Portfolio  vs.  Aggressive Balanced Allocation

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

Aggressive Balanced

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Balanced Allocation are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Aggressive Balanced may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Health Biotchnology and Aggressive Balanced

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

The idea behind Health Biotchnology Portfolio and Aggressive Balanced Allocation 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.