Correlation Between DaVita HealthCare and HCA Holdings

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

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

Diversification Opportunities for DaVita HealthCare and HCA Holdings

0.26

Correlation Coefficient

DaVita HealthCare  HCA Holdings

Modest diversification

The 3 months correlation between DaVita and HCA is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding DaVita HealthCare Partners and HCA Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCA Holdings and DaVita 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 DaVita HealthCare Partners are associated (or correlated) with HCA Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCA Holdings has no effect on the direction of DaVita HealthCare i.e., DaVita HealthCare and HCA Holdings go up and down completely randomly.

Pair Corralation between DaVita HealthCare and HCA Holdings

Considering the 90-day investment horizon DaVita HealthCare Partners is expected to under-perform the HCA Holdings. In addition to that, DaVita HealthCare is 1.12 times more volatile than HCA Holdings. It trades about 0.0 of its total potential returns per unit of risk. HCA Holdings is currently generating about 0.1 per unit of volatility. If you would invest  30,184  in HCA Holdings on December 27, 2024 and sell it today you would earn a total of  3,545  from holding HCA Holdings or generate 11.74% return on investment over 90 days.

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

DaVita HealthCare Partners  vs.  HCA Holdings

DaVita HealthCare

Risk-Adjusted Performance

Very Weak

Over the last 90 days DaVita HealthCare Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DaVita HealthCare is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HCA Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HCA Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, HCA Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DaVita HealthCare and HCA Holdings

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

The idea behind DaVita HealthCare Partners and HCA Holdings 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.