Correlation Between National Health and Diversified Healthcare

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

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

Diversification Opportunities for National Health and Diversified Healthcare

-0.54

Correlation Coefficient

National Health  Diversified Healthcare

Excellent diversification

The 3 months correlation between National and Diversified is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding National Health Investors and Diversified Healthcare Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Healthcare and National Health 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 National Health Investors are associated (or correlated) with Diversified Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Healthcare has no effect on the direction of National Health i.e., National Health and Diversified Healthcare go up and down completely randomly.

Pair Corralation between National Health and Diversified Healthcare

Considering the 90-day investment horizon National Health Investors is expected to generate 0.42 times more return on investment than Diversified Healthcare. However, National Health Investors is 2.38 times less risky than Diversified Healthcare. It trades about 0.23 of its potential returns per unit of risk. Diversified Healthcare Trust is currently generating about -0.03 per unit of risk. If you would invest  6,101  in National Health Investors on February 6, 2024 and sell it today you would earn a total of  371.00  from holding National Health Investors or generate 6.08% return on investment over 90 days.

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

National Health Investors  vs.  Diversified Healthcare Trust

National Health Investors

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Health Investors are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical indicators, National Health demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Diversified Healthcare

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Healthcare Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Diversified Healthcare is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with National Health and Diversified Healthcare

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

The idea behind National Health Investors and Diversified 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.