Correlation Between Community Health and Acadia Healthcare

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

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

Diversification Opportunities for Community Health and Acadia Healthcare

0.83

Correlation Coefficient

Community Health  Acadia Healthcare

Very poor diversification

The 3 months correlation between Community and Acadia is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Community Health Systems and Acadia Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acadia Healthcare and Community Health 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 Community Health Systems 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 Community Health i.e., Community Health and Acadia Healthcare go up and down completely randomly.

Pair Corralation between Community Health and Acadia Healthcare

Considering the 90-day investment horizon Community Health Systems is expected to generate 1.08 times more return on investment than Acadia Healthcare. However, Community Health is 1.08 times more volatile than Acadia Healthcare. It trades about -0.14 of its potential returns per unit of risk. Acadia Healthcare is currently generating about -0.25 per unit of risk. If you would invest  560.00  in Community Health Systems on September 12, 2024 and sell it today you would lose (197.00) from holding Community Health Systems or give up 35.18% of portfolio value over 90 days.

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

Community Health Systems  vs.  Acadia Healthcare

Community Health Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Community Health Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 unsteady performance in the last few months, the Stock's technical 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.

Pair Trading with Community Health and Acadia Healthcare

The main advantage of trading using opposite Community Health and Acadia Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Community Health 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 Community Health Systems 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.