Correlation Between Health Care and Global X

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

By analyzing existing cross correlation between Health Care Select and Global X Aging, you can compare the effects of market volatilities on Health Care and Global X 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 Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Global X.

Diversification Opportunities for Health Care and Global X

0.92

Correlation Coefficient

Health Care  Global X

Almost no diversification

The 3 months correlation between Health and Global is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and Global X Aging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Aging 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 Select are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Aging has no effect on the direction of Health Care i.e., Health Care and Global X go up and down completely randomly.

Pair Corralation between Health Care and Global X

Considering the 90-day investment horizon Health Care Select is expected to under-perform the Global X. But the etf apears to be less risky and, when comparing its historical volatility, Health Care Select is 1.02 times less risky than Global X. The etf trades about -0.13 of its potential returns per unit of risk. The Global X Aging is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,279  in Global X Aging on September 2, 2024 and sell it today you would lose (84.00) from holding Global X Aging or give up 2.56% of portfolio value over 90 days.

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

Health Care Select  vs.  Global X Aging

Health Care Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Health Care is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Global X Aging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global X Aging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Global X is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Health Care and Global X

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

The idea behind Health Care Select and Global X Aging 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.