Correlation Between National Health and Welltower

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

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

Diversification Opportunities for National Health and Welltower

0.32

Correlation Coefficient

National Health  Welltower

Weak diversification

The 3 months correlation between National and Welltower is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding National Health Investors and Welltower in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Welltower and National 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 National Health Investors are associated (or correlated) with Welltower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Welltower has no effect on the direction of National Health i.e., National Health and Welltower go up and down completely randomly.

Pair Corralation between National Health and Welltower

Assuming the 90 days horizon National Health Investors is expected to under-perform the Welltower. In addition to that, National Health is 1.12 times more volatile than Welltower. It trades about -0.04 of its total potential returns per unit of risk. Welltower is currently generating about 0.07 per unit of volatility. If you would invest  11,644  in Welltower on October 12, 2024 and sell it today you would earn a total of  561.00  from holding Welltower or generate 4.82% return on investment over 90 days.

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

National Health Investors  vs.  Welltower

National Health Investors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Health Investors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, National Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Welltower

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Welltower are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Welltower is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with National Health and Welltower

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

The idea behind National Health Investors and Welltower 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.