Correlation Between Acadia Healthcare and Select Medical

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

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

Diversification Opportunities for Acadia Healthcare and Select Medical

0.17

Correlation Coefficient

Acadia Healthcare  Select Medical

Average diversification

The 3 months correlation between Acadia and Select is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Acadia Healthcare and Select Medical Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Medical 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 Select Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Medical Holdings has no effect on the direction of Acadia Healthcare i.e., Acadia Healthcare and Select Medical go up and down completely randomly.

Pair Corralation between Acadia Healthcare and Select Medical

Given the investment horizon of 90 days Acadia Healthcare is expected to generate 0.98 times more return on investment than Select Medical. However, Acadia Healthcare is 1.02 times less risky than Select Medical. It trades about 0.02 of its potential returns per unit of risk. Select Medical Holdings is currently generating about -0.09 per unit of risk. If you would invest  4,063  in Acadia Healthcare on November 28, 2024 and sell it today you would earn a total of  37.00  from holding Acadia Healthcare or generate 0.91% return on investment over 90 days.

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

Acadia Healthcare  vs.  Select Medical Holdings

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.

Select Medical Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Select Medical Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Acadia Healthcare and Select Medical

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

The idea behind Acadia Healthcare and Select Medical 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.