Biotechnology ETFs: Performance Analysis
and Demystifying the Correlation Matrix

Abstract

The authors investigate the performance of biotechnology ETFs relative to the S&P 500 and NASDAQ Biotechnology indexes during the past five years. They show that the biotechnology ETFs and NASDAQ Biotechnology Index had higher five-year average returns than that of the market index. The five annual Sharpe and Treynor ratios also indicate that the ETFs and NASDAQ Biotechnology Index outperformed the market. The results also imply that the ETFs were highly correlated with each other and the NASDAQ Biotechnology Index but were least correlated with the market. These findings indicate that during the economic slowdown, the biotechnology sector generated lucrative returns for investors and outperformed the market.

TOPICS: Exchange-traded funds and applications, performance measurement