Correlation Between Encompass Health and Numinus Wellness

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

Diversification Opportunities for Encompass Health and Numinus Wellness

0.59

Correlation Coefficient

Encompass Health  Numinus Wellness

Very weak diversification

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

Pair Corralation between Encompass Health and Numinus Wellness

Considering the 90-day investment horizon Encompass Health Corp is expected to under-perform the Numinus Wellness. But the stock apears to be less risky and, when comparing its historical volatility, Encompass Health Corp is 9.33 times less risky than Numinus Wellness. The stock trades about -0.02 of its potential returns per unit of risk. The Numinus Wellness is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2.30  in Numinus Wellness on October 5, 2024 and sell it today you would earn a total of  0.11  from holding Numinus Wellness or generate 4.78% 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.  Numinus Wellness

Encompass Health Corp

Risk-Adjusted Performance

0 of 100

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.

Numinus Wellness

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Numinus Wellness are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating forward indicators, Numinus Wellness reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Encompass Health and Numinus Wellness

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

The idea behind Encompass Health Corp and Numinus Wellness 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.