Correlation Between Health Care and Vanguard Consumer

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

Diversification Opportunities for Health Care and Vanguard Consumer

0.13

Correlation Coefficient

Health Care  Vanguard Consumer

Average diversification

The 3 months correlation between Health and Vanguard is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and Vanguard Consumer Staples in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Consumer Staples 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 Vanguard Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Consumer Staples has no effect on the direction of Health Care i.e., Health Care and Vanguard Consumer go up and down completely randomly.

Pair Corralation between Health Care and Vanguard Consumer

Considering the 90-day investment horizon Health Care is expected to generate 42.94 times less return on investment than Vanguard Consumer. In addition to that, Health Care is 1.31 times more volatile than Vanguard Consumer Staples. It trades about 0.01 of its total potential returns per unit of risk. Vanguard Consumer Staples is currently generating about 0.33 per unit of volatility. If you would invest  21,314  in Vanguard Consumer Staples on September 5, 2024 and sell it today you would earn a total of  958.00  from holding Vanguard Consumer Staples or generate 4.49% return on investment over 90 days.

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

Health Care Select  vs.  Vanguard Consumer Staples

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.

Vanguard Consumer Staples

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Staples are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Vanguard Consumer is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Health Care and Vanguard Consumer

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

The idea behind Health Care Select and Vanguard Consumer Staples 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.