Correlation Between Encompass Health and Community Health

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

Diversification Opportunities for Encompass Health and Community Health

-0.71

Correlation Coefficient

Encompass Health  Community Health

Pay attention - limited upside

The 3 months correlation between Encompass and Community is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and Community Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Health Systems 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 Community Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Health Systems has no effect on the direction of Encompass Health i.e., Encompass Health and Community Health go up and down completely randomly.

Pair Corralation between Encompass Health and Community Health

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 0.33 times more return on investment than Community Health. However, Encompass Health Corp is 3.01 times less risky than Community Health. It trades about 0.12 of its potential returns per unit of risk. Community Health Systems is currently generating about -0.14 per unit of risk. If you would invest  9,310  in Encompass Health Corp on September 2, 2024 and sell it today you would earn a total of  984.00  from holding Encompass Health Corp or generate 10.57% return on investment over 90 days.

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

Encompass Health Corp  vs.  Community Health Systems

Encompass Health Corp

Risk-Adjusted Performance

9 of 100

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 January 2025.

Community Health Systems

Risk-Adjusted Performance

0 of 100

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 unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Encompass Health and Community Health

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

The idea behind Encompass Health Corp and Community Health Systems 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.