Correlation Between Community Health and HCA Holdings

Can any of the company-specific risk be diversified away by investing in both Community Health and HCA Holdings 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 HCA Holdings 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 HCA Holdings, you can compare the effects of market volatilities on Community Health and HCA Holdings 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 HCA Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community Health and HCA Holdings.

Diversification Opportunities for Community Health and HCA Holdings

0.01

Correlation Coefficient

Community Health  HCA Holdings

Significant diversification

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

Pair Corralation between Community Health and HCA Holdings

Considering the 90-day investment horizon Community Health Systems is expected to under-perform the HCA Holdings. In addition to that, Community Health is 1.78 times more volatile than HCA Holdings. It trades about -0.02 of its total potential returns per unit of risk. HCA Holdings is currently generating about 0.12 per unit of volatility. If you would invest  29,775  in HCA Holdings on December 28, 2024 and sell it today you would earn a total of  4,459  from holding HCA Holdings or generate 14.98% return on investment over 90 days.

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

Community Health Systems  vs.  HCA Holdings

Community Health Systems

Risk-Adjusted Performance

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 fairly strong basic indicators, Community Health is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

HCA Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HCA Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, HCA Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Community Health and HCA Holdings

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

The idea behind Community Health Systems and HCA Holdings 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.