Correlation Between Health Care and Electronics Fund

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

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

Diversification Opportunities for Health Care and Electronics Fund

0.65

Correlation Coefficient

Health Care  Electronics Fund

Poor diversification

The 3 months correlation between Health and Electronics is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Electronics Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronics Fund Class 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 Fund are associated (or correlated) with Electronics Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronics Fund Class has no effect on the direction of Health Care i.e., Health Care and Electronics Fund go up and down completely randomly.

Pair Corralation between Health Care and Electronics Fund

Assuming the 90 days horizon Health Care Fund is expected to under-perform the Electronics Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Health Care Fund is 2.45 times less risky than Electronics Fund. The mutual fund trades about -0.29 of its potential returns per unit of risk. The Electronics Fund Class is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  32,804  in Electronics Fund Class on January 30, 2024 and sell it today you would lose (1,549) from holding Electronics Fund Class or give up 4.72% of portfolio value over 90 days.

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

Health Care Fund  vs.  Electronics Fund Class

Health Care Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Health Care is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Electronics Fund Class

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electronics Fund Class are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Electronics Fund may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Health Care and Electronics Fund

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

The idea behind Health Care Fund and Electronics Fund Class 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.