Correlation Between Encompass Health and Community Health
Can any of the company-specific risk be diversified away by investing in both Encompass Health 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 Encompass Health and Community Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Encompass Health Corp and Community Health Systems, you can compare the effects of market volatilities on Encompass Health 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 Encompass Health with a short position of Community Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Encompass Health and Community Health.
Diversification Opportunities for Encompass Health and Community Health
-0.57 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Encompass and Community is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp 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 Encompass 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 Encompass Health Corp 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 Encompass Health i.e., Encompass Health and Community Health go up and down completely randomly.
Pair Corralation between Encompass Health and Community Health
Considering the 90-day investment horizon Encompass Health is expected to generate 1.24 times less return on investment than Community Health. But when comparing it to its historical volatility, Encompass Health Corp is 3.81 times less risky than Community Health. It trades about 0.09 of its potential returns per unit of risk. Community Health Systems is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 331.00 in Community Health Systems on August 24, 2024 and sell it today you would earn a total of 34.00 from holding Community Health Systems or generate 10.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Encompass Health Corp vs. Community Health Systems
Performance |
| Timeline |
| Encompass Health Corp |
| Community Health Systems |
Encompass Health and Community Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Encompass Health and Community Health
The main advantage of trading using opposite Encompass Health and Community Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Encompass Health 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.| Encompass Health vs. Pennant Group | Encompass Health vs. The Ensign Group | Encompass Health vs. InnovAge Holding Corp | Encompass Health vs. ModivCare |
| Community Health vs. Universal Health Services | Community Health vs. HCA Holdings | Community Health vs. Surgery Partners | Community Health vs. Acadia Healthcare |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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