Correlation Between National Health and Omega Healthcare

Can any of the company-specific risk be diversified away by investing in both National Health and Omega 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 National Health and Omega Healthcare 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 Omega Healthcare Investors, you can compare the effects of market volatilities on National Health and Omega 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 National Health with a short position of Omega Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Health and Omega Healthcare.

Diversification Opportunities for National Health and Omega Healthcare

-0.04

Correlation Coefficient

National Health  Omega Healthcare

Good diversification

The 3 months correlation between National and Omega is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding National Health Investors and Omega Healthcare Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omega Healthcare Inv 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 Omega Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omega Healthcare Inv has no effect on the direction of National Health i.e., National Health and Omega Healthcare go up and down completely randomly.

Pair Corralation between National Health and Omega Healthcare

Assuming the 90 days horizon National Health is expected to generate 1.87 times less return on investment than Omega Healthcare. But when comparing it to its historical volatility, National Health Investors is 1.07 times less risky than Omega Healthcare. It trades about 0.06 of its potential returns per unit of risk. Omega Healthcare Investors is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,002  in Omega Healthcare Investors on September 24, 2024 and sell it today you would earn a total of  624.00  from holding Omega Healthcare Investors or generate 20.79% return on investment over 90 days.

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

National Health Investors  vs.  Omega Healthcare Investors

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Omega Healthcare Inv

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Omega Healthcare Investors are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Omega Healthcare 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 Omega Healthcare

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

The idea behind National Health Investors and Omega Healthcare Investors 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.