Correlation Between Healthcare Realty and Diamondrock Hospitality

Can any of the company-specific risk be diversified away by investing in both Healthcare Realty and Diamondrock Hospitality 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 Healthcare Realty and Diamondrock Hospitality into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Healthcare Realty Trust and Diamondrock Hospitality, you can compare the effects of market volatilities on Healthcare Realty and Diamondrock Hospitality 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 Healthcare Realty with a short position of Diamondrock Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Healthcare Realty and Diamondrock Hospitality.

Diversification Opportunities for Healthcare Realty and Diamondrock Hospitality

-0.89

Correlation Coefficient

Healthcare Realty  Diamondrock Hospitality

Pay attention - limited upside

The 3 months correlation between Healthcare and Diamondrock is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Realty Trust and Diamondrock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality and Healthcare Realty 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 Healthcare Realty Trust are associated (or correlated) with Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of Healthcare Realty i.e., Healthcare Realty and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between Healthcare Realty and Diamondrock Hospitality

Allowing for the 90-day total investment horizon Healthcare Realty Trust is expected to generate 1.21 times more return on investment than Diamondrock Hospitality. However, Healthcare Realty is 1.21 times more volatile than Diamondrock Hospitality. It trades about 0.24 of its potential returns per unit of risk. Diamondrock Hospitality is currently generating about -0.15 per unit of risk. If you would invest  1,312  in Healthcare Realty Trust on March 13, 2024 and sell it today you would earn a total of  342.00  from holding Healthcare Realty Trust or generate 26.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Healthcare Realty Trust  vs.  Diamondrock Hospitality

Healthcare Realty Trust

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Healthcare Realty Trust are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Healthcare Realty reported solid returns over the last few months and may actually be approaching a breakup point.

Diamondrock Hospitality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamondrock Hospitality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Healthcare Realty and Diamondrock Hospitality

The main advantage of trading using opposite Healthcare Realty and Diamondrock Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Healthcare Realty position performs unexpectedly, Diamondrock Hospitality 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 Diamondrock Hospitality will offset losses from the drop in Diamondrock Hospitality's long position.

The idea behind Healthcare Realty Trust and Diamondrock Hospitality 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.