Can any of the company-specific risk be diversified away by investing in both Healthcare Realty and Tandem Diabetes 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 Tandem Diabetes 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 Tandem Diabetes Care, you can compare the effects of market volatilities on Healthcare Realty and Tandem Diabetes 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 Tandem Diabetes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Healthcare Realty and Tandem Diabetes.
Diversification Opportunities for Healthcare Realty and Tandem Diabetes
The 3 months correlation between Healthcare and Tandem is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Realty Trust and Tandem Diabetes Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandem Diabetes Care 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 Tandem Diabetes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandem Diabetes Care has no effect on the direction of Healthcare Realty i.e., Healthcare Realty and Tandem Diabetes go up and down completely randomly.
Pair Corralation between Healthcare Realty and Tandem Diabetes
Allowing for the 90-day total investment horizon Healthcare Realty Trust is expected to under-perform the Tandem Diabetes. But the stock apears to be less risky and, when comparing its historical volatility, Healthcare Realty Trust is 2.41 times less risky than Tandem Diabetes. The stock trades about -0.01 of its potential returns per unit of risk. The Tandem Diabetes Care is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,361 in Tandem Diabetes Care on September 9, 2023 and sell it today you would earn a total of 40.00 from holding Tandem Diabetes Care or generate 1.69% 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 relatively invariable basic indicators, Healthcare Realty is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Tandem Diabetes Care are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, Tandem Diabetes may actually be approaching a critical reversion point that can send shares even higher in January 2024.
Healthcare Realty and Tandem Diabetes Volatility Contrast
Predicted Return Density
Pair Trading with Healthcare Realty and Tandem Diabetes
The main advantage of trading using opposite Healthcare Realty and Tandem Diabetes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Healthcare Realty position performs unexpectedly, Tandem Diabetes 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 Tandem Diabetes will offset losses from the drop in Tandem Diabetes' long position.
The idea behind Healthcare Realty Trust and Tandem Diabetes Care 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 Stocks Directory module to find actively traded stocks across global markets.
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