Correlation Between Acadia Healthcare and Option Care

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

By analyzing existing cross correlation between Acadia Healthcare and Option Care Health, you can compare the effects of market volatilities on Acadia Healthcare and Option Care 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 Option Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Acadia Healthcare and Option Care.

Diversification Opportunities for Acadia Healthcare and Option Care

0.54

Correlation Coefficient

Acadia Healthcare  Option Care

Very weak diversification

The 3 months correlation between Acadia and Option is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Acadia Healthcare and Option Care Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Option Care Health 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 Option Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Option Care Health has no effect on the direction of Acadia Healthcare i.e., Acadia Healthcare and Option Care go up and down completely randomly.

Pair Corralation between Acadia Healthcare and Option Care

Given the investment horizon of 90 days Acadia Healthcare is expected to generate 14.84 times less return on investment than Option Care. But when comparing it to its historical volatility, Acadia Healthcare is 1.12 times less risky than Option Care. It trades about 0.02 of its potential returns per unit of risk. Option Care Health is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  2,380  in Option Care Health on November 28, 2024 and sell it today you would earn a total of  925.50  from holding Option Care Health or generate 38.89% return on investment over 90 days.

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

Acadia Healthcare  vs.  Option Care Health

Acadia Healthcare

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Acadia Healthcare are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Acadia Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Option Care Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Option Care Health are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, Option Care demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Acadia Healthcare and Option Care

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

The idea behind Acadia Healthcare and Option Care Health 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.