Correlation Between ADDUS HOMECARE and Gear Energy

Can any of the company-specific risk be diversified away by investing in both ADDUS HOMECARE and Gear Energy 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 ADDUS HOMECARE and Gear Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ADDUS HOMECARE and Gear Energy, you can compare the effects of market volatilities on ADDUS HOMECARE and Gear Energy 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 ADDUS HOMECARE with a short position of Gear Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADDUS HOMECARE and Gear Energy.

Diversification Opportunities for ADDUS HOMECARE and Gear Energy

-0.27

Correlation Coefficient

ADDUS HOMECARE  Gear Energy

Very good diversification

The 3 months correlation between ADDUS and Gear is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding ADDUS HOMECARE and Gear Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear Energy and ADDUS HOMECARE 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 ADDUS HOMECARE are associated (or correlated) with Gear Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear Energy has no effect on the direction of ADDUS HOMECARE i.e., ADDUS HOMECARE and Gear Energy go up and down completely randomly.

Pair Corralation between ADDUS HOMECARE and Gear Energy

Assuming the 90 days trading horizon ADDUS HOMECARE is expected to generate 0.42 times more return on investment than Gear Energy. However, ADDUS HOMECARE is 2.4 times less risky than Gear Energy. It trades about 0.23 of its potential returns per unit of risk. Gear Energy is currently generating about 0.06 per unit of risk. If you would invest  11,400  in ADDUS HOMECARE on October 10, 2024 and sell it today you would earn a total of  700.00  from holding ADDUS HOMECARE or generate 6.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

ADDUS HOMECARE  vs.  Gear Energy

ADDUS HOMECARE

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADDUS HOMECARE are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ADDUS HOMECARE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Gear Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Gear Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ADDUS HOMECARE and Gear Energy

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

The idea behind ADDUS HOMECARE and Gear Energy 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.