Correlation Between Health Care and Invesco Nasdaq

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

Diversification Opportunities for Health Care and Invesco Nasdaq

0.8

Correlation Coefficient

Health Care  Invesco Nasdaq

Very poor diversification

The 3 months correlation between Health and Invesco is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and Invesco Nasdaq Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Nasdaq Biote 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 Invesco Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Nasdaq Biote has no effect on the direction of Health Care i.e., Health Care and Invesco Nasdaq go up and down completely randomly.

Pair Corralation between Health Care and Invesco Nasdaq

Considering the 90-day investment horizon Health Care Select is expected to generate 0.57 times more return on investment than Invesco Nasdaq. However, Health Care Select is 1.76 times less risky than Invesco Nasdaq. It trades about -0.01 of its potential returns per unit of risk. Invesco Nasdaq Biotechnology is currently generating about -0.03 per unit of risk. If you would invest  14,774  in Health Care Select on September 2, 2024 and sell it today you would lose (33.00) from holding Health Care Select or give up 0.22% of portfolio value over 90 days.

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

Health Care Select  vs.  Invesco Nasdaq Biotechnology

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.

Invesco Nasdaq Biote

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Nasdaq Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Invesco Nasdaq is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Health Care and Invesco Nasdaq

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

The idea behind Health Care Select and Invesco Nasdaq Biotechnology 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.