Correlation Between Amedisys and Encompass Health

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

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

Diversification Opportunities for Amedisys and Encompass Health

-0.4

Correlation Coefficient

Amedisys  Encompass Health

Very good diversification

The 3 months correlation between Amedisys and Encompass is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Amedisys 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 Amedisys 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 Amedisys 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 Amedisys i.e., Amedisys and Encompass Health go up and down completely randomly.

Pair Corralation between Amedisys and Encompass Health

Given the investment horizon of 90 days Amedisys is expected to under-perform the Encompass Health. But the stock apears to be less risky and, when comparing its historical volatility, Amedisys is 1.26 times less risky than Encompass Health. The stock trades about -0.26 of its potential returns per unit of risk. The Encompass Health Corp is currently generating about 0.0 of returns per unit of risk over similar time horizon. 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Amedisys  vs.  Encompass Health Corp

Amedisys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amedisys has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 Amedisys and Encompass Health

The main advantage of trading using opposite Amedisys and Encompass Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amedisys 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 Amedisys 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.