Correlation Between Health Care and Emerging Markets

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

Diversification Opportunities for Health Care and Emerging Markets

-0.29

Correlation Coefficient

Health Care  Emerging Markets

Very good diversification

The 3 months correlation between Health and Emerging is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Ultrasector and Emerging Markets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Por 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 Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Por has no effect on the direction of Health Care i.e., Health Care and Emerging Markets go up and down completely randomly.

Pair Corralation between Health Care and Emerging Markets

Assuming the 90 days horizon Health Care Ultrasector is expected to under-perform the Emerging Markets. In addition to that, Health Care is 2.47 times more volatile than Emerging Markets Portfolio. It trades about -0.03 of its total potential returns per unit of risk. Emerging Markets Portfolio is currently generating about 0.1 per unit of volatility. If you would invest  2,360  in Emerging Markets Portfolio on May 1, 2025 and sell it today you would earn a total of  30.00  from holding Emerging Markets Portfolio or generate 1.27% return on investment over 90 days.

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

Health Care Ultrasector  vs.  Emerging Markets Portfolio

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.

Emerging Markets Por

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Portfolio are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Emerging Markets may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Health Care and Emerging Markets

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

The idea behind Health Care Ultrasector and Emerging Markets Portfolio 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.