Correlation Between Laboratory and Acadia Healthcare

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Can any of the company-specific risk be diversified away by investing in both Laboratory and Acadia 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 Laboratory and Acadia Healthcare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Laboratory of and Acadia Healthcare, you can compare the effects of market volatilities on Laboratory and Acadia 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 Laboratory with a short position of Acadia Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Laboratory and Acadia Healthcare.

Diversification Opportunities for Laboratory and Acadia Healthcare

-0.36
  Correlation Coefficient

Very good diversification

The 3 months correlation between Laboratory and Acadia is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Laboratory of and Acadia Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acadia Healthcare and Laboratory 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 Laboratory of are associated (or correlated) with Acadia Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acadia Healthcare has no effect on the direction of Laboratory i.e., Laboratory and Acadia Healthcare go up and down completely randomly.

Pair Corralation between Laboratory and Acadia Healthcare

Allowing for the 90-day total investment horizon Laboratory of is expected to generate 0.56 times more return on investment than Acadia Healthcare. However, Laboratory of is 1.79 times less risky than Acadia Healthcare. It trades about 0.04 of its potential returns per unit of risk. Acadia Healthcare is currently generating about -0.06 per unit of risk. If you would invest  19,844  in Laboratory of on August 24, 2024 and sell it today you would earn a total of  4,173  from holding Laboratory of or generate 21.03% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Laboratory of  vs.  Acadia Healthcare

 Performance 
       Timeline  
Laboratory 

Risk-Adjusted Performance

4 of 100

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

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Acadia Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Laboratory and Acadia Healthcare Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Laboratory and Acadia Healthcare

The main advantage of trading using opposite Laboratory and Acadia Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Laboratory position performs unexpectedly, Acadia 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 Acadia Healthcare will offset losses from the drop in Acadia Healthcare's long position.
The idea behind Laboratory of and Acadia Healthcare 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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