Can any of the company-specific risk be diversified away by investing in both Healthcare Realty and Hersha 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 Hersha 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 Hersha Hospitality Trust, you can compare the effects of market volatilities on Healthcare Realty and Hersha 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 Hersha Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Healthcare Realty and Hersha Hospitality.
Diversification Opportunities for Healthcare Realty and Hersha Hospitality
The 3 months correlation between Healthcare and Hersha is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Realty Trust and Hersha Hospitality Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hersha Hospitality Trust 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 Hersha Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hersha Hospitality Trust has no effect on the direction of Healthcare Realty i.e., Healthcare Realty and Hersha Hospitality go up and down completely randomly.
Pair Corralation between Healthcare Realty and Hersha Hospitality
Allowing for the 90-day total investment horizon Healthcare Realty Trust is expected to under-perform the Hersha Hospitality. In addition to that, Healthcare Realty is 12.11 times more volatile than Hersha Hospitality Trust. It trades about -0.11 of its total potential returns per unit of risk. Hersha Hospitality Trust is currently generating about 0.21 per unit of volatility. If you would invest 978.00 in Hersha Hospitality Trust on August 30, 2023 and sell it today you would earn a total of 21.00 from holding Hersha Hospitality Trust or generate 2.15% return on investment over 90 days.
Over the last 90 days Healthcare Realty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in December 2023. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Hersha Hospitality Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Hersha Hospitality is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
Healthcare Realty and Hersha Hospitality Volatility Contrast
Predicted Return Density
Pair Trading with Healthcare Realty and Hersha Hospitality
The main advantage of trading using opposite Healthcare Realty and Hersha Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Healthcare Realty position performs unexpectedly, Hersha 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 Hersha Hospitality will offset losses from the drop in Hersha Hospitality's long position.
The idea behind Healthcare Realty Trust and Hersha Hospitality 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.
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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