Correlation Between DaVita HealthCare and Tenet Healthcare

Can any of the company-specific risk be diversified away by investing in both DaVita HealthCare and Tenet 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 DaVita HealthCare and Tenet Healthcare 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 Tenet Healthcare, you can compare the effects of market volatilities on DaVita HealthCare and Tenet 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 DaVita HealthCare with a short position of Tenet Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of DaVita HealthCare and Tenet Healthcare.

Diversification Opportunities for DaVita HealthCare and Tenet Healthcare

-0.14

Correlation Coefficient

DaVita HealthCare  Tenet Healthcare

Good diversification

The 3 months correlation between DaVita and Tenet is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding DaVita HealthCare Partners and Tenet Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenet Healthcare 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 Tenet Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenet Healthcare has no effect on the direction of DaVita HealthCare i.e., DaVita HealthCare and Tenet Healthcare go up and down completely randomly.

Pair Corralation between DaVita HealthCare and Tenet Healthcare

Considering the 90-day investment horizon DaVita HealthCare Partners is expected to generate 0.65 times more return on investment than Tenet Healthcare. However, DaVita HealthCare Partners is 1.55 times less risky than Tenet Healthcare. It trades about 0.08 of its potential returns per unit of risk. Tenet Healthcare is currently generating about -0.05 per unit of risk. If you would invest  15,198  in DaVita HealthCare Partners on August 31, 2024 and sell it today you would earn a total of  1,365  from holding DaVita HealthCare Partners or generate 8.98% return on investment over 90 days.

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

DaVita HealthCare Partners  vs.  Tenet Healthcare

DaVita HealthCare

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DaVita HealthCare Partners are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, DaVita HealthCare may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Tenet Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tenet Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with DaVita HealthCare and Tenet Healthcare

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

The idea behind DaVita HealthCare Partners and Tenet Healthcare 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.