Correlation Between Diversified Healthcare and Office Properties

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

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

Diversification Opportunities for Diversified Healthcare and Office Properties

0.07

Correlation Coefficient

Diversified Healthcare  Office Properties

Significant diversification

The 3 months correlation between Diversified and Office is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Healthcare Trust and Office Properties Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Office Properties Income and Diversified 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 Diversified Healthcare Trust are associated (or correlated) with Office Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Office Properties Income has no effect on the direction of Diversified Healthcare i.e., Diversified Healthcare and Office Properties go up and down completely randomly.

Pair Corralation between Diversified Healthcare and Office Properties

Assuming the 90 days horizon Diversified Healthcare Trust is expected to generate 0.41 times more return on investment than Office Properties. However, Diversified Healthcare Trust is 2.44 times less risky than Office Properties. It trades about -0.01 of its potential returns per unit of risk. Office Properties Income is currently generating about -0.17 per unit of risk. 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

Diversified Healthcare Trust  vs.  Office Properties Income

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Office Properties Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Office Properties Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Diversified Healthcare and Office Properties

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

The idea behind Diversified Healthcare Trust and Office Properties Income 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.