Correlation Between Inverse Mid-cap and Health Care

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

By analyzing existing cross correlation between Inverse Mid Cap Strategy and Health Care Fund, you can compare the effects of market volatilities on Inverse Mid-cap and Health Care 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 Inverse Mid-cap with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Mid-cap and Health Care.

Diversification Opportunities for Inverse Mid-cap and Health Care

-0.62

Correlation Coefficient

Inverse Mid-cap  Health Care

Excellent diversification

The 3 months correlation between Inverse and HEALTH is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Mid Cap Strategy and Health Care Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Fund and Inverse Mid-cap 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 Inverse Mid Cap Strategy are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Fund has no effect on the direction of Inverse Mid-cap i.e., Inverse Mid-cap and Health Care go up and down completely randomly.

Pair Corralation between Inverse Mid-cap and Health Care

Assuming the 90 days horizon Inverse Mid Cap Strategy is expected to under-perform the Health Care. In addition to that, Inverse Mid-cap is 1.57 times more volatile than Health Care Fund. It trades about -0.05 of its total potential returns per unit of risk. Health Care Fund is currently generating about 0.11 per unit of volatility. If you would invest  4,303  in Health Care Fund on June 23, 2024 and sell it today you would earn a total of  230.00  from holding Health Care Fund or generate 5.35% return on investment over 90 days.

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

Inverse Mid Cap Strategy  vs.  Health Care Fund

Inverse Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Mid Cap Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Inverse Mid-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Health Care Fund

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Health Care Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Inverse Mid-cap and Health Care

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

The idea behind Inverse Mid Cap Strategy and Health Care 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.