Correlation Between Diversified Healthcare and Healthcare Trust

Can any of the company-specific risk be diversified away by investing in both Diversified Healthcare and Healthcare Trust 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 Healthcare Trust 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 Healthcare Trust, you can compare the effects of market volatilities on Diversified Healthcare and Healthcare Trust 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 Healthcare Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Healthcare and Healthcare Trust.

Diversification Opportunities for Diversified Healthcare and Healthcare Trust

-0.71

Correlation Coefficient

Diversified Healthcare  Healthcare Trust

Pay attention - limited upside

The 3 months correlation between Diversified and Healthcare is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Healthcare Trust and Healthcare Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Healthcare Trust 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 Healthcare Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Healthcare Trust has no effect on the direction of Diversified Healthcare i.e., Diversified Healthcare and Healthcare Trust go up and down completely randomly.

Pair Corralation between Diversified Healthcare and Healthcare Trust

If you would invest  242.00  in Diversified Healthcare Trust on January 25, 2024 and sell it today you would lose (1.00) from holding Diversified Healthcare Trust or give up 0.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	4.76%
Values	Daily Returns

Diversified Healthcare Trust  vs.  Healthcare Trust

Diversified Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diversified Healthcare Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Healthcare Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Healthcare Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Healthcare Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diversified Healthcare and Healthcare Trust

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

The idea behind Diversified Healthcare Trust and Healthcare Trust 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.