Correlation Between Aesthetic Medical and Encompass Health

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

By analyzing existing cross correlation between Aesthetic Medical Intl and Encompass Health Corp, you can compare the effects of market volatilities on Aesthetic Medical and Encompass Health 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 Aesthetic Medical with a short position of Encompass Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aesthetic Medical and Encompass Health.

Diversification Opportunities for Aesthetic Medical and Encompass Health

0.26

Correlation Coefficient

Aesthetic Medical  Encompass Health

Modest diversification

The 3 months correlation between Aesthetic and Encompass is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Aesthetic Medical Intl and Encompass Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encompass Health Corp and Aesthetic Medical 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 Aesthetic Medical Intl are associated (or correlated) with Encompass Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encompass Health Corp has no effect on the direction of Aesthetic Medical i.e., Aesthetic Medical and Encompass Health go up and down completely randomly.

Pair Corralation between Aesthetic Medical and Encompass Health

If you would invest  9,466  in Encompass Health Corp on September 24, 2024 and sell it today you would lose (21.00) from holding Encompass Health Corp or give up 0.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	2.38%
Values	Daily Returns

Aesthetic Medical Intl  vs.  Encompass Health Corp

Aesthetic Medical Intl

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aesthetic Medical Intl has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Aesthetic Medical is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Encompass Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Encompass Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Encompass Health is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aesthetic Medical and Encompass Health

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

The idea behind Aesthetic Medical Intl and Encompass Health Corp 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.