Correlation Between Healthcare Realty and American Homes

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

By analyzing existing cross correlation between Healthcare Realty Trust and American Homes 4, you can compare the effects of market volatilities on Healthcare Realty and American Homes 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 Healthcare Realty with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Healthcare Realty and American Homes.

Diversification Opportunities for Healthcare Realty and American Homes

-0.48

Correlation Coefficient

Healthcare Realty  American Homes

Very good diversification

The 3 months correlation between Healthcare and American is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Realty Trust and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 and Healthcare Realty 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 Healthcare Realty Trust are associated (or correlated) with American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of Healthcare Realty i.e., Healthcare Realty and American Homes go up and down completely randomly.

Pair Corralation between Healthcare Realty and American Homes

Allowing for the 90-day total investment horizon Healthcare Realty Trust is expected to generate 1.65 times more return on investment than American Homes. However, Healthcare Realty is 1.65 times more volatile than American Homes 4. It trades about 0.04 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.05 per unit of risk. If you would invest  1,388  in Healthcare Realty Trust on January 31, 2024 and sell it today you would earn a total of  35.00  from holding Healthcare Realty Trust or generate 2.52% return on investment over 90 days.

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

Healthcare Realty Trust  vs.  American Homes 4

Healthcare Realty Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Healthcare Realty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

American Homes 4

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong primary indicators, American Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Healthcare Realty and American Homes

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

The idea behind Healthcare Realty Trust and American Homes 4 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.