Correlation Between Encompass Health and Pennant

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

Diversification Opportunities for Encompass Health and Pennant

-0.24

Correlation Coefficient

Encompass Health  Pennant

Very good diversification

The 3 months correlation between Encompass and Pennant is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and Pennant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pennant 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 Pennant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pennant Group has no effect on the direction of Encompass Health i.e., Encompass Health and Pennant go up and down completely randomly.

Pair Corralation between Encompass Health and Pennant

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 0.51 times more return on investment than Pennant. However, Encompass Health Corp is 1.96 times less risky than Pennant. It trades about 0.11 of its potential returns per unit of risk. Pennant Group is currently generating about -0.02 per unit of risk. If you would invest  9,225  in Encompass Health Corp on December 30, 2024 and sell it today you would earn a total of  853.00  from holding Encompass Health Corp or generate 9.25% return on investment over 90 days.

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

Encompass Health Corp  vs.  Pennant Group

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 8 (%) 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.

Pennant Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pennant Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Pennant is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Encompass Health and Pennant

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

The idea behind Encompass Health Corp and Pennant 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.