Correlation Between Encompass Health and Regional Health

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

Diversification Opportunities for Encompass Health and Regional Health

-0.52

Correlation Coefficient

Encompass Health  Regional Health

Excellent diversification

The 3 months correlation between Encompass and Regional is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and Regional Health Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Health Prop 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 Regional Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Health Prop has no effect on the direction of Encompass Health i.e., Encompass Health and Regional Health go up and down completely randomly.

Pair Corralation between Encompass Health and Regional Health

Considering the 90-day investment horizon Encompass Health is expected to generate 1.05 times less return on investment than Regional Health. But when comparing it to its historical volatility, Encompass Health Corp is 5.48 times less risky than Regional Health. It trades about 0.1 of its potential returns per unit of risk. Regional Health Properties is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  182.00  in Regional Health Properties on August 31, 2024 and sell it today you would lose (12.00) from holding Regional Health Properties or give up 6.59% of portfolio value over 90 days.

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

Encompass Health Corp  vs.  Regional Health Properties

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 December 2024.

Regional Health Prop

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Encompass Health and Regional Health

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

The idea behind Encompass Health Corp and Regional Health Properties 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.