Correlation Between Forestar and Healthcare Trust

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

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

Diversification Opportunities for Forestar and Healthcare Trust

0.87

Correlation Coefficient

Forestar  Healthcare Trust

Very poor diversification

The 3 months correlation between Forestar and Healthcare is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Forestar Group and Healthcare Trust PR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Healthcare Trust and Forestar 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 Forestar Group are associated (or correlated) with Healthcare Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Healthcare Trust has no effect on the direction of Forestar i.e., Forestar and Healthcare Trust go up and down completely randomly.

Pair Corralation between Forestar and Healthcare Trust

Considering the 90-day investment horizon Forestar Group is expected to under-perform the Healthcare Trust. But the stock apears to be less risky and, when comparing its historical volatility, Forestar Group is 1.3 times less risky than Healthcare Trust. The stock trades about -0.52 of its potential returns per unit of risk. The Healthcare Trust PR is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  1,579  in Healthcare Trust PR on October 1, 2024 and sell it today you would lose (85.00) from holding Healthcare Trust PR or give up 5.38% of portfolio value over 90 days.

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

Forestar Group  vs.  Healthcare Trust PR

Forestar Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forestar Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Healthcare Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Forestar and Healthcare Trust

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

The idea behind Forestar Group and Healthcare Trust PR 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.