Correlation Between Technology Select and Health Care
Can any of the company-specific risk be diversified away by investing in both Technology Select 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 Technology Select and Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Technology Select Sector and Health Care Select, you can compare the effects of market volatilities on Technology Select 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 Technology Select with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology Select and Health Care.
Diversification Opportunities for Technology Select and Health Care
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Technology and Health is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select and Technology Select 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 Technology Select Sector 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 Select has no effect on the direction of Technology Select i.e., Technology Select and Health Care go up and down completely randomly.
Pair Corralation between Technology Select and Health Care
Considering the 90-day investment horizon Technology Select Sector is expected to under-perform the Health Care. In addition to that, Technology Select is 1.39 times more volatile than Health Care Select. It trades about -0.3 of its total potential returns per unit of risk. Health Care Select is currently generating about -0.25 per unit of volatility. If you would invest 14,524 in Health Care Select on January 24, 2024 and sell it today you would lose (576.00) from holding Health Care Select or give up 3.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Technology Select Sector vs. Health Care Select
Performance |
| Timeline |
| Technology Select Sector |
| Health Care Select |
Technology Select and Health Care Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Technology Select and Health Care
The main advantage of trading using opposite Technology Select and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Technology Select 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.| Technology Select vs. First Trust Exchange Traded | Technology Select vs. Horizon Kinetics Medical | Technology Select vs. Harbor Health Care | Technology Select vs. American Beacon GLG |
| Health Care vs. Consumer Staples Select | Health Care vs. Industrial Select Sector | Health Care vs. Consumer Discretionary Select | Health Care vs. Utilities Select Sector |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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