Correlation Between Primary Health and Target Healthcare

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

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

Diversification Opportunities for Primary Health and Target Healthcare

0.75

Correlation Coefficient

Primary Health  Target Healthcare

Poor diversification

The 3 months correlation between Primary and Target is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Primary Health Properties and Target Healthcare REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Healthcare REIT and Primary 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 Primary Health Properties are associated (or correlated) with Target Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Healthcare REIT has no effect on the direction of Primary Health i.e., Primary Health and Target Healthcare go up and down completely randomly.

Pair Corralation between Primary Health and Target Healthcare

Assuming the 90 days trading horizon Primary Health Properties is expected to under-perform the Target Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, Primary Health Properties is 1.49 times less risky than Target Healthcare. The stock trades about -0.2 of its potential returns per unit of risk. The Target Healthcare REIT is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  8,410  in Target Healthcare REIT on September 25, 2024 and sell it today you would lose (190.00) from holding Target Healthcare REIT or give up 2.26% of portfolio value over 90 days.

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

Primary Health Properties  vs.  Target Healthcare REIT

Primary Health Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Primary Health Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Target Healthcare REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target Healthcare REIT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Primary Health and Target Healthcare

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

The idea behind Primary Health Properties and Target Healthcare REIT 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.