Correlation Between Brookdale Senior and Encompass Health

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

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

Diversification Opportunities for Brookdale Senior and Encompass Health

0.34

Correlation Coefficient

Brookdale Senior  Encompass Health

Weak diversification

The 3 months correlation between Brookdale and Encompass is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Brookdale Senior Living 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 Brookdale Senior 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 Brookdale Senior Living 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 Brookdale Senior i.e., Brookdale Senior and Encompass Health go up and down completely randomly.

Pair Corralation between Brookdale Senior and Encompass Health

Considering the 90-day investment horizon Brookdale Senior Living is expected to generate 1.86 times more return on investment than Encompass Health. However, Brookdale Senior is 1.86 times more volatile than Encompass Health Corp. It trades about 0.15 of its potential returns per unit of risk. Encompass Health Corp is currently generating about 0.11 per unit of risk. If you would invest  494.00  in Brookdale Senior Living on December 29, 2024 and sell it today you would earn a total of  121.00  from holding Brookdale Senior Living or generate 24.49% return on investment over 90 days.

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

Brookdale Senior Living  vs.  Encompass Health Corp

Brookdale Senior Living

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookdale Senior Living are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward-looking signals, Brookdale Senior exhibited solid returns over the last few months and may actually be approaching a breakup point.

Encompass Health Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical indicators, Encompass Health may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Brookdale Senior and Encompass Health

The main advantage of trading using opposite Brookdale Senior and Encompass Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookdale Senior 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 Brookdale Senior Living 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.