Correlation Between Health Care and Pharmaceuticals Ultrasector

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

Diversification Opportunities for Health Care and Pharmaceuticals Ultrasector

0.3

Correlation Coefficient

Health Care  Pharmaceuticals Ultrasector

Weak diversification

The 3 months correlation between Health and Pharmaceuticals is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Ultrasector and Pharmaceuticals Ultrasector Pr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharmaceuticals Ultrasector 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 Pharmaceuticals Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharmaceuticals Ultrasector has no effect on the direction of Health Care i.e., Health Care and Pharmaceuticals Ultrasector go up and down completely randomly.

Pair Corralation between Health Care and Pharmaceuticals Ultrasector

Assuming the 90 days horizon Health Care Ultrasector is expected to under-perform the Pharmaceuticals Ultrasector. But the mutual fund apears to be less risky and, when comparing its historical volatility, Health Care Ultrasector is 1.11 times less risky than Pharmaceuticals Ultrasector. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Pharmaceuticals Ultrasector Profund is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,126  in Pharmaceuticals Ultrasector Profund on May 13, 2025 and sell it today you would earn a total of  272.00  from holding Pharmaceuticals Ultrasector Profund or generate 12.79% return on investment over 90 days.

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

Health Care Ultrasector  vs.  Pharmaceuticals Ultrasector Pr

Health Care Ultrasector

Risk-Adjusted Performance

Weakest

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.

Pharmaceuticals Ultrasector

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Pharmaceuticals Ultrasector Profund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Pharmaceuticals Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Health Care and Pharmaceuticals Ultrasector

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

The idea behind Health Care Ultrasector and Pharmaceuticals Ultrasector Profund 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 Transaction History module to view history of all your transactions and understand their impact on performance.