Correlation Between Encompass Health and American Shared

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

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

Diversification Opportunities for Encompass Health and American Shared

-0.56

Correlation Coefficient

Encompass Health  American Shared

Excellent diversification

The 3 months correlation between Encompass and American is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and American Shared Hospital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Shared Hospital and Encompass 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 Encompass Health Corp are associated (or correlated) with American Shared. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Shared Hospital has no effect on the direction of Encompass Health i.e., Encompass Health and American Shared go up and down completely randomly.

Pair Corralation between Encompass Health and American Shared

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 0.78 times more return on investment than American Shared. However, Encompass Health Corp is 1.28 times less risky than American Shared. It trades about 0.11 of its potential returns per unit of risk. American Shared Hospital is currently generating about -0.09 per unit of risk. If you would invest  9,225  in Encompass Health Corp on December 29, 2024 and sell it today you would earn a total of  853.00  from holding Encompass Health Corp or generate 9.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Encompass Health Corp  vs.  American Shared Hospital

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 unfluctuating technical indicators, Encompass Health may actually be approaching a critical reversion point that can send shares even higher in April 2025.

American Shared Hospital

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Shared Hospital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Encompass Health and American Shared

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

The idea behind Encompass Health Corp and American Shared Hospital 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.