Correlation Between DaVita HealthCare and Community Health

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

Diversification Opportunities for DaVita HealthCare and Community Health

-0.53
  Correlation Coefficient

Excellent diversification

The 3 months correlation between DaVita and Community is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding DaVita HealthCare Partners and Community Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Health Systems 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 Community Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Health Systems has no effect on the direction of DaVita HealthCare i.e., DaVita HealthCare and Community Health go up and down completely randomly.

Pair Corralation between DaVita HealthCare and Community Health

Considering the 90-day investment horizon DaVita HealthCare is expected to generate 3.0 times less return on investment than Community Health. But when comparing it to its historical volatility, DaVita HealthCare Partners is 2.09 times less risky than Community Health. It trades about 0.21 of its potential returns per unit of risk. Community Health Systems is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  274.00  in Community Health Systems on December 30, 2023 and sell it today you would earn a total of  76.00  from holding Community Health Systems or generate 27.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

DaVita HealthCare Partners  vs.  Community Health Systems

 Performance 
       Timeline  
DaVita HealthCare 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in DaVita HealthCare Partners are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, DaVita HealthCare sustained solid returns over the last few months and may actually be approaching a breakup point.
Community Health Systems 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Community Health Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal basic indicators, Community Health demonstrated solid returns over the last few months and may actually be approaching a breakup point.

DaVita HealthCare and Community Health Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DaVita HealthCare and Community Health

The main advantage of trading using opposite DaVita HealthCare and Community Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DaVita HealthCare position performs unexpectedly, Community 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 Community Health will offset losses from the drop in Community Health's long position.
The idea behind DaVita HealthCare Partners and Community Health Systems 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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