Correlation Between NorthWest Healthcare and Extendicare

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

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

Diversification Opportunities for NorthWest Healthcare and Extendicare

-0.4

Correlation Coefficient

NorthWest Healthcare  Extendicare

Very good diversification

The 3 months correlation between NorthWest and Extendicare is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding NorthWest Healthcare Propertie and Extendicare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extendicare and NorthWest 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 NorthWest Healthcare Properties are associated (or correlated) with Extendicare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extendicare has no effect on the direction of NorthWest Healthcare i.e., NorthWest Healthcare and Extendicare go up and down completely randomly.

Pair Corralation between NorthWest Healthcare and Extendicare

Assuming the 90 days trading horizon NorthWest Healthcare Properties is expected to under-perform the Extendicare. But the stock apears to be less risky and, when comparing its historical volatility, NorthWest Healthcare Properties is 1.12 times less risky than Extendicare. The stock trades about 0.0 of its potential returns per unit of risk. The Extendicare is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  880.00  in Extendicare on September 2, 2024 and sell it today you would earn a total of  182.00  from holding Extendicare or generate 20.68% return on investment over 90 days.

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

NorthWest Healthcare Propertie  vs.  Extendicare

NorthWest Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NorthWest Healthcare Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, NorthWest Healthcare is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Extendicare

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Extendicare are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Extendicare displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NorthWest Healthcare and Extendicare

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

The idea behind NorthWest Healthcare Properties and Extendicare 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.