Correlation Between HCA Healthcare and Target Healthcare

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

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

Diversification Opportunities for HCA Healthcare and Target Healthcare

0.57

Correlation Coefficient

HCA Healthcare  Target Healthcare

Very weak diversification

The 3 months correlation between HCA and Target is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding HCA Healthcare and Target Healthcare REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Healthcare REIT and HCA 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 HCA Healthcare are associated (or correlated) with Target Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Healthcare REIT has no effect on the direction of HCA Healthcare i.e., HCA Healthcare and Target Healthcare go up and down completely randomly.

Pair Corralation between HCA Healthcare and Target Healthcare

Assuming the 90 days trading horizon HCA Healthcare is expected to generate 1.32 times more return on investment than Target Healthcare. However, HCA Healthcare is 1.32 times more volatile than Target Healthcare REIT. It trades about 0.11 of its potential returns per unit of risk. Target Healthcare REIT is currently generating about 0.11 per unit of risk. If you would invest  29,855  in HCA Healthcare on December 30, 2024 and sell it today you would earn a total of  4,394  from holding HCA Healthcare or generate 14.72% return on investment over 90 days.

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

HCA Healthcare  vs.  Target Healthcare REIT

HCA Healthcare

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HCA Healthcare are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, HCA Healthcare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Target Healthcare REIT

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Target Healthcare REIT are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Target Healthcare may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with HCA Healthcare and Target Healthcare

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

The idea behind HCA Healthcare and Target Healthcare REIT 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.