Correlation Between Encompass Health and DaVita HealthCare

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

Diversification Opportunities for Encompass Health and DaVita HealthCare

0.08

Correlation Coefficient

Encompass Health  DaVita HealthCare

Significant diversification

The 3 months correlation between Encompass and DaVita is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and DaVita HealthCare Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DaVita HealthCare 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 DaVita HealthCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DaVita HealthCare has no effect on the direction of Encompass Health i.e., Encompass Health and DaVita HealthCare go up and down completely randomly.

Pair Corralation between Encompass Health and DaVita HealthCare

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 0.6 times more return on investment than DaVita HealthCare. However, Encompass Health Corp is 1.68 times less risky than DaVita HealthCare. It trades about 0.12 of its potential returns per unit of risk. DaVita HealthCare Partners is currently generating about 0.02 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  889.00  from holding Encompass Health Corp or generate 9.64% return on investment over 90 days.

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

Encompass Health Corp  vs.  DaVita HealthCare Partners

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

DaVita HealthCare

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DaVita HealthCare Partners are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, DaVita HealthCare is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Encompass Health and DaVita HealthCare

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

The idea behind Encompass Health Corp and DaVita HealthCare Partners 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.