Correlation Between Vanguard Health and IShares Medical

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

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

Diversification Opportunities for Vanguard Health and IShares Medical

-0.48

Correlation Coefficient

Vanguard Health  IShares Medical

Very good diversification

The 3 months correlation between Vanguard and IShares is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and iShares Medical Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Medical Devices and Vanguard Health 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 Vanguard Health Care are associated (or correlated) with IShares Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Medical Devices has no effect on the direction of Vanguard Health i.e., Vanguard Health and IShares Medical go up and down completely randomly.

Pair Corralation between Vanguard Health and IShares Medical

Considering the 90-day investment horizon Vanguard Health Care is expected to under-perform the IShares Medical. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Health Care is 1.08 times less risky than IShares Medical. The etf trades about -0.11 of its potential returns per unit of risk. The iShares Medical Devices is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,864  in iShares Medical Devices on September 3, 2024 and sell it today you would earn a total of  224.00  from holding iShares Medical Devices or generate 3.82% return on investment over 90 days.

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

Vanguard Health Care  vs.  iShares Medical Devices

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Vanguard Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Medical Devices

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Medical Devices are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, IShares Medical is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Vanguard Health and IShares Medical

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

The idea behind Vanguard Health Care and iShares Medical Devices 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.