Correlation Between Enhabit and Encompass Health

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

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

Diversification Opportunities for Enhabit and Encompass Health

0.72

Correlation Coefficient

Enhabit  Encompass Health

Poor diversification

The 3 months correlation between Enhabit and Encompass is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Enhabit and Encompass Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encompass Health Corp and Enhabit 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 Enhabit are associated (or correlated) with Encompass Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encompass Health Corp has no effect on the direction of Enhabit i.e., Enhabit and Encompass Health go up and down completely randomly.

Pair Corralation between Enhabit and Encompass Health

Given the investment horizon of 90 days Enhabit is expected to generate 1.64 times more return on investment than Encompass Health. However, Enhabit is 1.64 times more volatile than Encompass Health Corp. It trades about 0.09 of its potential returns per unit of risk. Encompass Health Corp is currently generating about 0.11 per unit of risk. If you would invest  769.00  in Enhabit on December 30, 2024 and sell it today you would earn a total of  95.00  from holding Enhabit or generate 12.35% return on investment over 90 days.

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

Enhabit  vs.  Encompass Health Corp

Enhabit

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enhabit are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Enhabit sustained solid returns over the last few months and may actually be approaching a breakup point.

Encompass Health Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical indicators, Encompass Health may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Enhabit and Encompass Health

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

The idea behind Enhabit and Encompass Health Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.