Correlation Between American Healthcare and Extra Space

Can any of the company-specific risk be diversified away by investing in both American Healthcare and Extra Space 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 Extra Space 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 Extra Space Storage, you can compare the effects of market volatilities on American Healthcare and Extra Space 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 Extra Space. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Healthcare and Extra Space.

Diversification Opportunities for American Healthcare and Extra Space

-0.34

Correlation Coefficient

American Healthcare  Extra Space

Very good diversification

The 3 months correlation between American and Extra is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding American Healthcare REIT, and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage 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 Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of American Healthcare i.e., American Healthcare and Extra Space go up and down completely randomly.

Pair Corralation between American Healthcare and Extra Space

Considering the 90-day investment horizon American Healthcare REIT, is expected to generate 1.27 times more return on investment than Extra Space. However, American Healthcare is 1.27 times more volatile than Extra Space Storage. It trades about 0.33 of its potential returns per unit of risk. Extra Space Storage is currently generating about -0.01 per unit of risk. If you would invest  2,072  in American Healthcare REIT, on August 30, 2024 and sell it today you would earn a total of  885.00  from holding American Healthcare REIT, or generate 42.71% return on investment over 90 days.

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

American Healthcare REIT,  vs.  Extra Space Storage

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 weak technical indicators, American Healthcare reported solid returns over the last few months and may actually be approaching a breakup point.

Extra Space Storage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Extra Space is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with American Healthcare and Extra Space

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

The idea behind American Healthcare REIT, and Extra Space Storage 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.