Correlation Between Aspen Pharmacare and Life Healthcare

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

By analyzing existing cross correlation between Aspen Pharmacare Holdings and Life Healthcare, you can compare the effects of market volatilities on Aspen Pharmacare and Life Healthcare 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 Aspen Pharmacare with a short position of Life Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aspen Pharmacare and Life Healthcare.

Diversification Opportunities for Aspen Pharmacare and Life Healthcare

-0.12

Correlation Coefficient

Aspen Pharmacare  Life Healthcare

Good diversification

The 3 months correlation between Aspen and Life is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Pharmacare Holdings and Life Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Healthcare and Aspen Pharmacare 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 Aspen Pharmacare Holdings are associated (or correlated) with Life Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Healthcare has no effect on the direction of Aspen Pharmacare i.e., Aspen Pharmacare and Life Healthcare go up and down completely randomly.

Pair Corralation between Aspen Pharmacare and Life Healthcare

Assuming the 90 days trading horizon Aspen Pharmacare Holdings is expected to under-perform the Life Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, Aspen Pharmacare Holdings is 1.1 times less risky than Life Healthcare. The stock trades about -0.12 of its potential returns per unit of risk. The Life Healthcare is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  168,700  in Life Healthcare on October 7, 2024 and sell it today you would lose (3,200) from holding Life Healthcare or give up 1.9% of portfolio value over 90 days.

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

Aspen Pharmacare Holdings  vs.  Life Healthcare

Aspen Pharmacare Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aspen Pharmacare Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Life Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Aspen Pharmacare and Life Healthcare

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

The idea behind Aspen Pharmacare Holdings and Life Healthcare 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .