Correlation Between Omega Healthcare and Starwood Property

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

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

Diversification Opportunities for Omega Healthcare and Starwood Property

0.49

Correlation Coefficient

Omega Healthcare  Starwood Property

Very weak diversification

The 3 months correlation between Omega and Starwood is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Omega Healthcare Investors and Starwood Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starwood Property Trust and Omega 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 Omega Healthcare Investors are associated (or correlated) with Starwood Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starwood Property Trust has no effect on the direction of Omega Healthcare i.e., Omega Healthcare and Starwood Property go up and down completely randomly.

Pair Corralation between Omega Healthcare and Starwood Property

Considering the 90-day investment horizon Omega Healthcare Investors is expected to under-perform the Starwood Property. In addition to that, Omega Healthcare is 1.14 times more volatile than Starwood Property Trust. It trades about -0.04 of its total potential returns per unit of risk. Starwood Property Trust is currently generating about 0.19 per unit of volatility. If you would invest  1,858  in Starwood Property Trust on October 20, 2024 and sell it today you would earn a total of  79.00  from holding Starwood Property Trust or generate 4.25% return on investment over 90 days.

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

Omega Healthcare Investors  vs.  Starwood Property Trust

Omega Healthcare Inv

Risk-Adjusted Performance

0 of 100

Very Weak

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

Starwood Property Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Starwood Property Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Starwood Property is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Omega Healthcare and Starwood Property

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

The idea behind Omega Healthcare Investors and Starwood Property 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.