Correlation Between Diversified Healthcare and Essential Properties

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

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

Diversification Opportunities for Diversified Healthcare and Essential Properties

-0.38

Correlation Coefficient

Diversified Healthcare  Essential Properties

Very good diversification

The 3 months correlation between Diversified and Essential is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Healthcare Trust and Essential Properties Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Properties and Diversified Healthcare 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 Diversified Healthcare Trust are associated (or correlated) with Essential Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Properties has no effect on the direction of Diversified Healthcare i.e., Diversified Healthcare and Essential Properties go up and down completely randomly.

Pair Corralation between Diversified Healthcare and Essential Properties

Considering the 90-day investment horizon Diversified Healthcare Trust is expected to generate 3.08 times more return on investment than Essential Properties. However, Diversified Healthcare is 3.08 times more volatile than Essential Properties Realty. It trades about 0.09 of its potential returns per unit of risk. Essential Properties Realty is currently generating about 0.13 per unit of risk. If you would invest  234.00  in Diversified Healthcare Trust on March 19, 2024 and sell it today you would earn a total of  45.50  from holding Diversified Healthcare Trust or generate 19.44% return on investment over 90 days.

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

Diversified Healthcare Trust  vs.  Essential Properties Realty

Diversified Healthcare

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Healthcare Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical indicators, Diversified Healthcare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Essential Properties

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Essential Properties Realty are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Essential Properties unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diversified Healthcare and Essential Properties

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

The idea behind Diversified Healthcare Trust and Essential Properties Realty 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.