Correlation Between Vanguard Health and IShares Healthcare

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

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

Diversification Opportunities for Vanguard Health and IShares Healthcare

0.83

Correlation Coefficient

Vanguard Health  IShares Healthcare

Very poor diversification

The 3 months correlation between Vanguard and IShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and iShares Healthcare Providers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Healthcare and Vanguard Health 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 Vanguard Health Care are associated (or correlated) with IShares Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Healthcare has no effect on the direction of Vanguard Health i.e., Vanguard Health and IShares Healthcare go up and down completely randomly.

Pair Corralation between Vanguard Health and IShares Healthcare

Considering the 90-day investment horizon Vanguard Health Care is expected to generate 0.85 times more return on investment than IShares Healthcare. However, Vanguard Health Care is 1.18 times less risky than IShares Healthcare. It trades about 0.15 of its potential returns per unit of risk. iShares Healthcare Providers is currently generating about 0.07 per unit of risk. If you would invest  22,480  in Vanguard Health Care on January 30, 2024 and sell it today you would earn a total of  3,052  from holding Vanguard Health Care or generate 13.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.19%
Values	Daily Returns

Vanguard Health Care  vs.  iShares Healthcare Providers

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Vanguard Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Health and IShares Healthcare

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

The idea behind Vanguard Health Care and iShares Healthcare Providers 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.