Correlation Between Health Care and Rite Aid
Can any of the company-specific risk be diversified away by investing in both Health Care and Rite Aid 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 Rite Aid 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 Rite Aid, you can compare the effects of market volatilities on Health Care and Rite Aid 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 Rite Aid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Rite Aid.
Diversification Opportunities for Health Care and Rite Aid
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Health and Rite is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and Rite Aid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rite Aid 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 Rite Aid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rite Aid has no effect on the direction of Health Care i.e., Health Care and Rite Aid go up and down completely randomly.
Pair Corralation between Health Care and Rite Aid
Considering the 90-day investment horizon Health Care Select is expected to generate 0.11 times more return on investment than Rite Aid. However, Health Care Select is 9.27 times less risky than Rite Aid. It trades about 0.02 of its potential returns per unit of risk. Rite Aid is currently generating about -0.05 per unit of risk. If you would invest 12,771 in Health Care Select on January 17, 2024 and sell it today you would earn a total of 1,092 from holding Health Care Select or generate 8.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 83.64% |
| Values | Daily Returns |
Health Care Select vs. Rite Aid
Performance |
| Timeline |
| Health Care Select |
| Rite Aid |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Health Care and Rite Aid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Rite Aid
The main advantage of trading using opposite Health Care and Rite Aid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Rite Aid 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 Rite Aid will offset losses from the drop in Rite Aid's long position.| Health Care vs. Consumer Staples Select | Health Care vs. Industrial Select Sector | Health Care vs. Consumer Discretionary Select | Health Care vs. Utilities Select Sector |
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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 Stocks Directory module to find actively traded stocks across global markets.
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