Correlation Between Target Healthcare and Extra Space

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

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

Diversification Opportunities for Target Healthcare and Extra Space

-0.26

Correlation Coefficient

Target Healthcare  Extra Space

Very good diversification

The 3 months correlation between Target and Extra is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Target Healthcare REIT and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage and Target 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 Target Healthcare REIT are associated (or correlated) with Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Target Healthcare i.e., Target Healthcare and Extra Space go up and down completely randomly.

Pair Corralation between Target Healthcare and Extra Space

Assuming the 90 days trading horizon Target Healthcare REIT is expected to generate 1.2 times more return on investment than Extra Space. However, Target Healthcare is 1.2 times more volatile than Extra Space Storage. It trades about 0.11 of its potential returns per unit of risk. Extra Space Storage is currently generating about -0.01 per unit of risk. If you would invest  8,400  in Target Healthcare REIT on December 31, 2024 and sell it today you would earn a total of  880.00  from holding Target Healthcare REIT or generate 10.48% return on investment over 90 days.

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

Target Healthcare REIT  vs.  Extra Space Storage

Target Healthcare REIT

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Target Healthcare REIT are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Target Healthcare may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Extra Space Storage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Extra Space is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Target Healthcare and Extra Space

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

The idea behind Target Healthcare REIT and Extra Space Storage 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.