Correlation Between Definitive Healthcare and HealthStream

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

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

Diversification Opportunities for Definitive Healthcare and HealthStream

0.84

Correlation Coefficient

Definitive Healthcare  HealthStream

Very poor diversification

The 3 months correlation between Definitive and HealthStream is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Definitive Healthcare Corp and HealthStream in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HealthStream and Definitive Healthcare 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 Definitive Healthcare Corp are associated (or correlated) with HealthStream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HealthStream has no effect on the direction of Definitive Healthcare i.e., Definitive Healthcare and HealthStream go up and down completely randomly.

Pair Corralation between Definitive Healthcare and HealthStream

Allowing for the 90-day total investment horizon Definitive Healthcare Corp is expected to generate 3.04 times more return on investment than HealthStream. However, Definitive Healthcare is 3.04 times more volatile than HealthStream. It trades about 0.05 of its potential returns per unit of risk. HealthStream is currently generating about -0.01 per unit of risk. If you would invest  473.00  in Definitive Healthcare Corp on November 28, 2024 and sell it today you would earn a total of  37.00  from holding Definitive Healthcare Corp or generate 7.82% return on investment over 90 days.

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

Definitive Healthcare Corp  vs.  HealthStream

Definitive Healthcare

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Definitive Healthcare Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Definitive Healthcare may actually be approaching a critical reversion point that can send shares even higher in March 2025.

HealthStream

Risk-Adjusted Performance

Very Weak

Over the last 90 days HealthStream has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, HealthStream is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Definitive Healthcare and HealthStream

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

The idea behind Definitive Healthcare Corp and HealthStream 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.