Correlation Between Health Biotchnology and Asset Allocation

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

Diversification Opportunities for Health Biotchnology and Asset Allocation

-0.5

Correlation Coefficient

Health Biotchnology  Asset Allocation

Very good diversification

The 3 months correlation between HEALTH and Asset is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Health Biotchnology Portfolio and Asset Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asset Allocation 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 Asset Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asset Allocation has no effect on the direction of Health Biotchnology i.e., Health Biotchnology and Asset Allocation go up and down completely randomly.

Pair Corralation between Health Biotchnology and Asset Allocation

Assuming the 90 days horizon Health Biotchnology Portfolio is expected to under-perform the Asset Allocation. In addition to that, Health Biotchnology is 1.8 times more volatile than Asset Allocation Fund. It trades about -0.02 of its total potential returns per unit of risk. Asset Allocation Fund is currently generating about 0.35 per unit of volatility. If you would invest  1,211  in Asset Allocation Fund on September 5, 2024 and sell it today you would earn a total of  46.00  from holding Asset Allocation Fund or generate 3.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Health Biotchnology Portfolio  vs.  Asset Allocation Fund

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.

Asset Allocation

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Asset Allocation Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Asset Allocation 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 Biotchnology and Asset Allocation

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

The idea behind Health Biotchnology Portfolio and Asset Allocation Fund 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.