Correlation Between Virtus LifeSci and Industrial Select

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Can any of the company-specific risk be diversified away by investing in both Virtus LifeSci and Industrial Select 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 Virtus LifeSci and Industrial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Virtus LifeSci Biotech and Industrial Select Sector, you can compare the effects of market volatilities on Virtus LifeSci and Industrial Select 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 Virtus LifeSci with a short position of Industrial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Virtus LifeSci and Industrial Select.

Diversification Opportunities for Virtus LifeSci and Industrial Select

-0.21
  Correlation Coefficient

Very good diversification

The 3 months correlation between Virtus and Industrial is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Virtus LifeSci Biotech and Industrial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Select Sector and Virtus LifeSci 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 Virtus LifeSci Biotech are associated (or correlated) with Industrial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Select Sector has no effect on the direction of Virtus LifeSci i.e., Virtus LifeSci and Industrial Select go up and down completely randomly.

Pair Corralation between Virtus LifeSci and Industrial Select

Considering the 90-day investment horizon Virtus LifeSci Biotech is expected to generate 1.56 times more return on investment than Industrial Select. However, Virtus LifeSci is 1.56 times more volatile than Industrial Select Sector. It trades about 0.04 of its potential returns per unit of risk. Industrial Select Sector is currently generating about 0.05 per unit of risk. If you would invest  4,334  in Virtus LifeSci Biotech on December 30, 2023 and sell it today you would earn a total of  1,327  from holding Virtus LifeSci Biotech or generate 30.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Virtus LifeSci Biotech  vs.  Industrial Select Sector

 Performance 
       Timeline  
Virtus LifeSci Biotech 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Virtus LifeSci Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Virtus LifeSci is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.
Industrial Select Sector 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Select Sector are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, Industrial Select may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Virtus LifeSci and Industrial Select Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Virtus LifeSci and Industrial Select

The main advantage of trading using opposite Virtus LifeSci and Industrial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Virtus LifeSci position performs unexpectedly, Industrial Select 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 Industrial Select will offset losses from the drop in Industrial Select's long position.
The idea behind Virtus LifeSci Biotech and Industrial Select Sector 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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