Correlation Between Encompass Health and Chemed Corp

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

Diversification Opportunities for Encompass Health and Chemed Corp

0.59

Correlation Coefficient

Encompass Health  Chemed Corp

Very weak diversification

The 3 months correlation between Encompass and Chemed is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and Chemed Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chemed Corp 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 Chemed Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chemed Corp has no effect on the direction of Encompass Health i.e., Encompass Health and Chemed Corp go up and down completely randomly.

Pair Corralation between Encompass Health and Chemed Corp

Considering the 90-day investment horizon Encompass Health is expected to generate 1.6 times less return on investment than Chemed Corp. But when comparing it to its historical volatility, Encompass Health Corp is 1.12 times less risky than Chemed Corp. It trades about 0.12 of its potential returns per unit of risk. Chemed Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  52,735  in Chemed Corp on December 28, 2024 and sell it today you would earn a total of  8,501  from holding Chemed Corp or generate 16.12% return on investment over 90 days.

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

Encompass Health Corp  vs.  Chemed Corp

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 9 (%) 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.

Chemed Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chemed Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical indicators, Chemed Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Encompass Health and Chemed Corp

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

The idea behind Encompass Health Corp and Chemed 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.