Correlation Between Health Care and Smallcap World

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

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

Diversification Opportunities for Health Care and Smallcap World

-0.26

Correlation Coefficient

Health Care  Smallcap World

Very good diversification

The 3 months correlation between Health and Smallcap is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Ultrasector and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World 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 Ultrasector are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of Health Care i.e., Health Care and Smallcap World go up and down completely randomly.

Pair Corralation between Health Care and Smallcap World

Assuming the 90 days horizon Health Care Ultrasector is expected to under-perform the Smallcap World. In addition to that, Health Care is 2.24 times more volatile than Smallcap World Fund. It trades about -0.05 of its total potential returns per unit of risk. Smallcap World Fund is currently generating about 0.28 per unit of volatility. If you would invest  6,014  in Smallcap World Fund on April 30, 2025 and sell it today you would earn a total of  853.00  from holding Smallcap World Fund or generate 14.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Health Care Ultrasector  vs.  Smallcap World Fund

Health Care Ultrasector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Health Care Ultrasector 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.

Smallcap World

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Smallcap World showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Health Care and Smallcap World

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

The idea behind Health Care Ultrasector and Smallcap World Fund 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.