Correlation Between National Health and Diamondrock Hospitality

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

By analyzing existing cross correlation between National Health Investors and Diamondrock Hospitality, you can compare the effects of market volatilities on National Health and Diamondrock Hospitality 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 National Health with a short position of Diamondrock Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Health and Diamondrock Hospitality.

Diversification Opportunities for National Health and Diamondrock Hospitality

0.38

Correlation Coefficient

National Health  Diamondrock Hospitality

Weak diversification

The 3 months correlation between National and Diamondrock is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding National Health Investors and Diamondrock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality and National Health 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 National Health Investors are associated (or correlated) with Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of National Health i.e., National Health and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between National Health and Diamondrock Hospitality

Considering the 90-day investment horizon National Health Investors is expected to generate 1.0 times more return on investment than Diamondrock Hospitality. However, National Health is 1.0 times more volatile than Diamondrock Hospitality. It trades about -0.06 of its potential returns per unit of risk. Diamondrock Hospitality is currently generating about -0.11 per unit of risk. If you would invest  7,565  in National Health Investors on November 29, 2024 and sell it today you would lose (441.00) from holding National Health Investors or give up 5.83% of portfolio value over 90 days.

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

National Health Investors  vs.  Diamondrock Hospitality

National Health Investors

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Health Investors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, National Health is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Diamondrock Hospitality

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamondrock Hospitality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with National Health and Diamondrock Hospitality

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

The idea behind National Health Investors and Diamondrock Hospitality 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.