Correlation Between Cross Country and Acadia Healthcare

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

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

Diversification Opportunities for Cross Country and Acadia Healthcare

0.01

Correlation Coefficient

Cross Country  Acadia Healthcare

Significant diversification

The 3 months correlation between Cross and Acadia is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Cross Country Healthcare and Acadia Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acadia Healthcare and Cross Country 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 Cross Country Healthcare are associated (or correlated) with Acadia Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acadia Healthcare has no effect on the direction of Cross Country i.e., Cross Country and Acadia Healthcare go up and down completely randomly.

Pair Corralation between Cross Country and Acadia Healthcare

Given the investment horizon of 90 days Cross Country is expected to generate 10.37 times less return on investment than Acadia Healthcare. But when comparing it to its historical volatility, Cross Country Healthcare is 12.61 times less risky than Acadia Healthcare. It trades about 0.4 of its potential returns per unit of risk. Acadia Healthcare is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  3,750  in Acadia Healthcare on October 23, 2024 and sell it today you would earn a total of  628.00  from holding Acadia Healthcare or generate 16.75% return on investment over 90 days.

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

Cross Country Healthcare  vs.  Acadia Healthcare

Cross Country Healthcare

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cross Country Healthcare are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Cross Country displayed solid returns over the last few months and may actually be approaching a breakup point.

Acadia Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Cross Country and Acadia Healthcare

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

The idea behind Cross Country Healthcare and Acadia 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.