Correlation Between IShares Healthcare and VanEck Pharmaceutical

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

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

Diversification Opportunities for IShares Healthcare and VanEck Pharmaceutical

0.88

Correlation Coefficient

IShares Healthcare  VanEck Pharmaceutical

Very poor diversification

The 3 months correlation between IShares and VanEck is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares Healthcare ETF and VanEck Pharmaceutical ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Pharmaceutical ETF and IShares Healthcare 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 iShares Healthcare ETF are associated (or correlated) with VanEck Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Pharmaceutical ETF has no effect on the direction of IShares Healthcare i.e., IShares Healthcare and VanEck Pharmaceutical go up and down completely randomly.

Pair Corralation between IShares Healthcare and VanEck Pharmaceutical

Considering the 90-day investment horizon iShares Healthcare ETF is expected to under-perform the VanEck Pharmaceutical. In addition to that, IShares Healthcare is 1.06 times more volatile than VanEck Pharmaceutical ETF. It trades about -0.15 of its total potential returns per unit of risk. VanEck Pharmaceutical ETF is currently generating about -0.06 per unit of volatility. If you would invest  8,877  in VanEck Pharmaceutical ETF on February 2, 2024 and sell it today you would lose (81.00) from holding VanEck Pharmaceutical ETF or give up 0.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

iShares Healthcare ETF  vs.  VanEck Pharmaceutical ETF

iShares Healthcare ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Healthcare ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, IShares Healthcare is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

VanEck Pharmaceutical ETF

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with IShares Healthcare and VanEck Pharmaceutical

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

The idea behind iShares Healthcare ETF and VanEck Pharmaceutical ETF 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.