Correlation Between Target Healthcare and Optima Health

Can any of the company-specific risk be diversified away by investing in both Target Healthcare and Optima Health 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 Optima Health 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 Optima Health plc, you can compare the effects of market volatilities on Target Healthcare and Optima Health 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 Optima Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Healthcare and Optima Health.

Diversification Opportunities for Target Healthcare and Optima Health

0.55

Correlation Coefficient

Target Healthcare  Optima Health

Very weak diversification

The 3 months correlation between Target and Optima is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Target Healthcare REIT and Optima Health plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optima Health plc 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 Optima Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optima Health plc has no effect on the direction of Target Healthcare i.e., Target Healthcare and Optima Health go up and down completely randomly.

Pair Corralation between Target Healthcare and Optima Health

Assuming the 90 days trading horizon Target Healthcare is expected to generate 5.82 times less return on investment than Optima Health. But when comparing it to its historical volatility, Target Healthcare REIT is 1.09 times less risky than Optima Health. It trades about 0.04 of its potential returns per unit of risk. Optima Health plc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  15,250  in Optima Health plc on December 1, 2024 and sell it today you would earn a total of  3,000  from holding Optima Health plc or generate 19.67% return on investment over 90 days.

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

Target Healthcare REIT  vs.  Optima Health plc

Target Healthcare REIT

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Target Healthcare REIT are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Target Healthcare is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Optima Health plc

Risk-Adjusted Performance

Good

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

Pair Trading with Target Healthcare and Optima Health

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

The idea behind Target Healthcare REIT and Optima Health plc 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.