Correlation Between DaVita HealthCare and Brookdale Senior
Can any of the company-specific risk be diversified away by investing in both DaVita HealthCare and Brookdale Senior 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 DaVita HealthCare and Brookdale Senior into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DaVita HealthCare Partners and Brookdale Senior Living, you can compare the effects of market volatilities on DaVita HealthCare and Brookdale Senior 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 DaVita HealthCare with a short position of Brookdale Senior. Check out your portfolio center. Please also check ongoing floating volatility patterns of DaVita HealthCare and Brookdale Senior.
Diversification Opportunities for DaVita HealthCare and Brookdale Senior
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between DaVita and Brookdale is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding DaVita HealthCare Partners and Brookdale Senior Living in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookdale Senior Living and DaVita 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 DaVita HealthCare Partners are associated (or correlated) with Brookdale Senior. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookdale Senior Living has no effect on the direction of DaVita HealthCare i.e., DaVita HealthCare and Brookdale Senior go up and down completely randomly.
Pair Corralation between DaVita HealthCare and Brookdale Senior
Considering the 90-day investment horizon DaVita HealthCare Partners is expected to under-perform the Brookdale Senior. But the stock apears to be less risky and, when comparing its historical volatility, DaVita HealthCare Partners is 2.1 times less risky than Brookdale Senior. The stock trades about -0.38 of its potential returns per unit of risk. The Brookdale Senior Living is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 638.00 in Brookdale Senior Living on January 19, 2024 and sell it today you would earn a total of 8.00 from holding Brookdale Senior Living or generate 1.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
DaVita HealthCare Partners vs. Brookdale Senior Living
Performance |
| Timeline |
| DaVita HealthCare |
| Brookdale Senior Living |
DaVita HealthCare and Brookdale Senior Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DaVita HealthCare and Brookdale Senior
The main advantage of trading using opposite DaVita HealthCare and Brookdale Senior positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DaVita HealthCare position performs unexpectedly, Brookdale Senior 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 Brookdale Senior will offset losses from the drop in Brookdale Senior's long position.The idea behind DaVita HealthCare Partners and Brookdale Senior Living 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.Check out your portfolio center.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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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