Correlation Between Acadia Healthcare and RCI Hospitality

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

By analyzing existing cross correlation between Acadia Healthcare and RCI Hospitality Holdings, you can compare the effects of market volatilities on Acadia Healthcare and RCI Hospitality 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 Acadia Healthcare with a short position of RCI Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Acadia Healthcare and RCI Hospitality.

Diversification Opportunities for Acadia Healthcare and RCI Hospitality

-0.77

Correlation Coefficient

Acadia Healthcare  RCI Hospitality

Pay attention - limited upside

The 3 months correlation between Acadia and RCI is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Acadia Healthcare and RCI Hospitality Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCI Hospitality Holdings and Acadia 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 Acadia Healthcare are associated (or correlated) with RCI Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCI Hospitality Holdings has no effect on the direction of Acadia Healthcare i.e., Acadia Healthcare and RCI Hospitality go up and down completely randomly.

Pair Corralation between Acadia Healthcare and RCI Hospitality

Assuming the 90 days horizon Acadia Healthcare is expected to under-perform the RCI Hospitality. In addition to that, Acadia Healthcare is 1.18 times more volatile than RCI Hospitality Holdings. It trades about -0.04 of its total potential returns per unit of risk. RCI Hospitality Holdings is currently generating about 0.21 per unit of volatility. If you would invest  3,815  in RCI Hospitality Holdings on October 11, 2024 and sell it today you would earn a total of  1,635  from holding RCI Hospitality Holdings or generate 42.86% return on investment over 90 days.

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

Acadia Healthcare  vs.  RCI Hospitality Holdings

Acadia Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Acadia Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

RCI Hospitality Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RCI Hospitality Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, RCI Hospitality unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Acadia Healthcare and RCI Hospitality

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

The idea behind Acadia Healthcare and RCI Hospitality Holdings 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 Global Correlations module to find global opportunities by holding instruments from different markets.