Correlation Between Health Care and IShares Biotechnology

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

By analyzing existing cross correlation between Health Care Select and iShares Biotechnology ETF, you can compare the effects of market volatilities on Health Care and IShares Biotechnology 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 IShares Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and IShares Biotechnology.

Diversification Opportunities for Health Care and IShares Biotechnology

0.55

Correlation Coefficient

Health Care  IShares Biotechnology

Very weak diversification

The 3 months correlation between Health and IShares is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and iShares Biotechnology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Biotechnology ETF 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 Select are associated (or correlated) with IShares Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Biotechnology ETF has no effect on the direction of Health Care i.e., Health Care and IShares Biotechnology go up and down completely randomly.

Pair Corralation between Health Care and IShares Biotechnology

Considering the 90-day investment horizon Health Care Select is expected to under-perform the IShares Biotechnology. But the etf apears to be less risky and, when comparing its historical volatility, Health Care Select is 1.23 times less risky than IShares Biotechnology. The etf trades about -0.01 of its potential returns per unit of risk. The iShares Biotechnology ETF is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  11,940  in iShares Biotechnology ETF on May 7, 2025 and sell it today you would earn a total of  1,597  from holding iShares Biotechnology ETF or generate 13.38% return on investment over 90 days.

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

Health Care Select  vs.  iShares Biotechnology ETF

Health Care Select

Risk-Adjusted Performance

Weakest

Over the last 90 days Health Care Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Health Care is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Biotechnology ETF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Biotechnology ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal fundamental drivers, IShares Biotechnology sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Health Care and IShares Biotechnology

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

The idea behind Health Care Select and iShares Biotechnology ETF 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.