Correlation Between DHCNI and Diversified Healthcare

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

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

Diversification Opportunities for DHCNI and Diversified Healthcare

0.43

Correlation Coefficient

DHCNI  Diversified Healthcare

Very weak diversification

The 3 months correlation between DHCNI and Diversified is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding DHCNI and Diversified Healthcare Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Healthcare and DHCNI 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 DHCNI 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 DHCNI i.e., DHCNI and Diversified Healthcare go up and down completely randomly.

Pair Corralation between DHCNI and Diversified Healthcare

Assuming the 90 days horizon DHCNI is expected to under-perform the Diversified Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, DHCNI is 1.09 times less risky than Diversified Healthcare. The stock trades about -0.07 of its potential returns per unit of risk. The Diversified Healthcare Trust is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,550  in Diversified Healthcare Trust on December 30, 2024 and sell it today you would lose (17.00) from holding Diversified Healthcare Trust or give up 1.1% of portfolio value over 90 days.

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

DHCNI  vs.  Diversified Healthcare Trust

DHCNI

Risk-Adjusted Performance

Very Weak

Over the last 90 days DHCNI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, DHCNI is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Diversified Healthcare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diversified Healthcare Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Diversified Healthcare is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with DHCNI and Diversified Healthcare

The main advantage of trading using opposite DHCNI and Diversified Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DHCNI 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 DHCNI 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.