Correlation Between Brookdale Senior and DaVita HealthCare

Can any of the company-specific risk be diversified away by investing in both Brookdale Senior and DaVita HealthCare 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 Brookdale Senior and DaVita HealthCare into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Brookdale Senior Living and DaVita HealthCare Partners, you can compare the effects of market volatilities on Brookdale Senior and DaVita HealthCare 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 Brookdale Senior with a short position of DaVita HealthCare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brookdale Senior and DaVita HealthCare.

Diversification Opportunities for Brookdale Senior and DaVita HealthCare

0.62

Correlation Coefficient

Brookdale Senior  DaVita HealthCare

Poor diversification

The 3 months correlation between Brookdale and DaVita is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Brookdale Senior Living and DaVita HealthCare Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DaVita HealthCare and Brookdale Senior 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 Brookdale Senior Living are associated (or correlated) with DaVita HealthCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DaVita HealthCare has no effect on the direction of Brookdale Senior i.e., Brookdale Senior and DaVita HealthCare go up and down completely randomly.

Pair Corralation between Brookdale Senior and DaVita HealthCare

Considering the 90-day investment horizon Brookdale Senior Living is expected to generate 1.81 times more return on investment than DaVita HealthCare. However, Brookdale Senior is 1.81 times more volatile than DaVita HealthCare Partners. It trades about 0.1 of its potential returns per unit of risk. DaVita HealthCare Partners is currently generating about -0.06 per unit of risk. If you would invest  643.00  in Brookdale Senior Living on January 26, 2024 and sell it today you would earn a total of  32.00  from holding Brookdale Senior Living or generate 4.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Brookdale Senior Living  vs.  DaVita HealthCare Partners

Brookdale Senior Living

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookdale Senior Living are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward-looking signals, Brookdale Senior exhibited solid returns over the last few months and may actually be approaching a breakup point.

DaVita HealthCare

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DaVita HealthCare Partners are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, DaVita HealthCare sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brookdale Senior and DaVita HealthCare

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

The idea behind Brookdale Senior Living and DaVita HealthCare Partners 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.