Healthcare: Incorrelation with S&P500 Index

This analysis highlights how some companies in the S&P500 index do not always follow the trend of their benchmark.

Let’s consider the S&P500 Health Care Select Sector, which includes companies that are classified as members of the GICS® health care sector.

Figure 1 S&P500 Index Vs S&P500 Health Care Select Sector ETF (source: https://it.tradingview.com/chart/fZxKlgPU/?symbol=CME%3ASU1%21)

As we can see from Figure 1, the two indexes show a high correlation on a monthly timeframe, but when analysing the stocks under the helthcare index individually we notice that they do not always respect this relationship.

In general, 29 out of 53 stocks have a correlation index with the SP500 of less than 0,5.

In addition, the months since 2010 in which the S&P500 index had a positive performance were considered. Once these positive months were identified, the differences (D) of the returns between the Health Care Select Sector and the S&P500 index were found: we thus note that 35 out of 53 stocks on average have lower returns than the S&P500.

The 3 stocks that most underperform the S&P500 index are shown in the table below:

Ticker	D	Win Ratio (a)	Correlation	Win Ratio (b)
PRGO	-1,89%	0,65	0,38	0,48
BMY	-1,35%	0,63	0,33	0,4
LLY	-1,18%	0,57	0,25	0,38

Table 1: The table shows the behaviour since 2010 of the three stocks that most underperform the S&P500 Index.

As can be seen from Table 1, the monthly correlations with the S&P500 are weak, with the differences in returns (D) on average below -1%. The Win Ratio (a) column indicates the percentage of stock underperformance in positive S&P500 months. Win ratio (b) indicates the percentage of negative stock returns in SP500’s positive months.