Correlation Between European Residential and DRI Healthcare

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

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

Diversification Opportunities for European Residential and DRI Healthcare

-0.33

Correlation Coefficient

European Residential  DRI Healthcare

Very good diversification

The 3 months correlation between European and DRI is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and DRI Healthcare Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRI Healthcare Trust and European Residential 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 European Residential Real are associated (or correlated) with DRI Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRI Healthcare Trust has no effect on the direction of European Residential i.e., European Residential and DRI Healthcare go up and down completely randomly.

Pair Corralation between European Residential and DRI Healthcare

Assuming the 90 days trading horizon European Residential Real is expected to under-perform the DRI Healthcare. In addition to that, European Residential is 6.34 times more volatile than DRI Healthcare Trust. It trades about -0.17 of its total potential returns per unit of risk. DRI Healthcare Trust is currently generating about -0.12 per unit of volatility. If you would invest  1,214  in DRI Healthcare Trust on October 9, 2024 and sell it today you would lose (42.00) from holding DRI Healthcare Trust or give up 3.46% of portfolio value over 90 days.

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

European Residential Real  vs.  DRI Healthcare Trust

European Residential Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Residential Real has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

DRI Healthcare Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DRI Healthcare Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with European Residential and DRI Healthcare

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

The idea behind European Residential Real and DRI 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.