Correlation Between American Healthcare and COPT Defense

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

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

Diversification Opportunities for American Healthcare and COPT Defense

0.64

Correlation Coefficient

American Healthcare  COPT Defense

Poor diversification

The 3 months correlation between American and COPT is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding American Healthcare REIT, and COPT Defense Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COPT Defense Properties and American 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 American Healthcare REIT, are associated (or correlated) with COPT Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COPT Defense Properties has no effect on the direction of American Healthcare i.e., American Healthcare and COPT Defense go up and down completely randomly.

Pair Corralation between American Healthcare and COPT Defense

Considering the 90-day investment horizon American Healthcare REIT, is expected to generate 1.64 times more return on investment than COPT Defense. However, American Healthcare is 1.64 times more volatile than COPT Defense Properties. It trades about 0.32 of its potential returns per unit of risk. COPT Defense Properties is currently generating about 0.19 per unit of risk. If you would invest  2,088  in American Healthcare REIT, on August 31, 2024 and sell it today you would earn a total of  869.00  from holding American Healthcare REIT, or generate 41.62% return on investment over 90 days.

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

American Healthcare REIT,  vs.  COPT Defense Properties

American Healthcare REIT,

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Healthcare REIT, are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting technical indicators, American Healthcare reported solid returns over the last few months and may actually be approaching a breakup point.

COPT Defense Properties

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in COPT Defense Properties are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, COPT Defense reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Healthcare and COPT Defense

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

The idea behind American Healthcare REIT, and COPT Defense Properties 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.