Correlation Between Chatham Rock and DRI Healthcare

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

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

Diversification Opportunities for Chatham Rock and DRI Healthcare

-0.35

Correlation Coefficient

Chatham Rock  DRI Healthcare

Very good diversification

The 3 months correlation between Chatham and DRI is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Chatham Rock Phosphate and DRI Healthcare Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRI Healthcare Trust and Chatham Rock 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 Chatham Rock Phosphate are associated (or correlated) with DRI Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRI Healthcare Trust has no effect on the direction of Chatham Rock i.e., Chatham Rock and DRI Healthcare go up and down completely randomly.

Pair Corralation between Chatham Rock and DRI Healthcare

Assuming the 90 days horizon Chatham Rock Phosphate is expected to generate 4.06 times more return on investment than DRI Healthcare. However, Chatham Rock is 4.06 times more volatile than DRI Healthcare Trust. It trades about 0.06 of its potential returns per unit of risk. DRI Healthcare Trust is currently generating about 0.07 per unit of risk. If you would invest  8.00  in Chatham Rock Phosphate on September 4, 2024 and sell it today you would earn a total of  1.00  from holding Chatham Rock Phosphate or generate 12.5% return on investment over 90 days.

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

Chatham Rock Phosphate  vs.  DRI Healthcare Trust

Chatham Rock Phosphate

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Rock Phosphate are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chatham Rock showed solid returns over the last few months and may actually be approaching a breakup point.

DRI Healthcare Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DRI Healthcare Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, DRI Healthcare may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Chatham Rock and DRI Healthcare

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

The idea behind Chatham Rock Phosphate and DRI Healthcare Trust 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.