Correlation Between CareRx and Regional Health

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

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

Diversification Opportunities for CareRx and Regional Health

0.36

Correlation Coefficient

CareRx  Regional Health

Weak diversification

The 3 months correlation between CareRx and Regional is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding CareRx and Regional Health Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Health Prop and CareRx 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 CareRx are associated (or correlated) with Regional Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Health Prop has no effect on the direction of CareRx i.e., CareRx and Regional Health go up and down completely randomly.

Pair Corralation between CareRx and Regional Health

Assuming the 90 days horizon CareRx is expected to generate 9.87 times less return on investment than Regional Health. But when comparing it to its historical volatility, CareRx is 9.71 times less risky than Regional Health. It trades about 0.16 of its potential returns per unit of risk. Regional Health Properties is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  151.00  in Regional Health Properties on October 21, 2024 and sell it today you would earn a total of  78.00  from holding Regional Health Properties or generate 51.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.48%
Values	Daily Returns

CareRx  vs.  Regional Health Properties

CareRx

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CareRx has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, CareRx is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Regional Health Prop

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Health Properties are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Regional Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CareRx and Regional Health

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

The idea behind CareRx and Regional Health Properties 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.