Correlation Between Encompass Health and Ensign

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

Diversification Opportunities for Encompass Health and Ensign

0.48

Correlation Coefficient

Encompass Health  Ensign

Very weak diversification

The 3 months correlation between Encompass and Ensign is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and The Ensign Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ensign Group 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 Ensign. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ensign Group has no effect on the direction of Encompass Health i.e., Encompass Health and Ensign go up and down completely randomly.

Pair Corralation between Encompass Health and Ensign

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 0.93 times more return on investment than Ensign. However, Encompass Health Corp is 1.07 times less risky than Ensign. It trades about 0.1 of its potential returns per unit of risk. The Ensign Group is currently generating about 0.06 per unit of risk. If you would invest  5,315  in Encompass Health Corp on November 28, 2024 and sell it today you would earn a total of  4,607  from holding Encompass Health Corp or generate 86.68% 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.  The Ensign Group

Encompass Health Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Encompass Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Encompass Health is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Ensign Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Ensign Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Encompass Health and Ensign

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

The idea behind Encompass Health Corp and The Ensign Group 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.