Correlation Between Medical Properties and LTC Properties

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

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

Diversification Opportunities for Medical Properties and LTC Properties

-0.15

Correlation Coefficient

Medical Properties  LTC Properties

Good diversification

The 3 months correlation between Medical and LTC is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Medical Properties Trust and LTC Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LTC Properties and Medical Properties 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 Medical Properties Trust are associated (or correlated) with LTC Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LTC Properties has no effect on the direction of Medical Properties i.e., Medical Properties and LTC Properties go up and down completely randomly.

Pair Corralation between Medical Properties and LTC Properties

Considering the 90-day investment horizon Medical Properties Trust is expected to generate 2.03 times more return on investment than LTC Properties. However, Medical Properties is 2.03 times more volatile than LTC Properties. It trades about 0.1 of its potential returns per unit of risk. LTC Properties is currently generating about -0.13 per unit of risk. If you would invest  430.00  in Medical Properties Trust on November 28, 2024 and sell it today you would earn a total of  55.00  from holding Medical Properties Trust or generate 12.79% return on investment over 90 days.

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

Medical Properties Trust  vs.  LTC Properties

Medical Properties Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Medical Properties Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Medical Properties showed solid returns over the last few months and may actually be approaching a breakup point.

LTC Properties

Risk-Adjusted Performance

Very Weak

Over the last 90 days LTC Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic 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 Medical Properties and LTC Properties

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

The idea behind Medical Properties Trust and LTC Properties 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.