Correlation Between Encompass Health and Oncology Institute

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

Diversification Opportunities for Encompass Health and Oncology Institute

-0.56

Correlation Coefficient

Encompass Health  Oncology Institute

Excellent diversification

The 3 months correlation between Encompass and Oncology is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and Oncology Institute in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oncology Institute 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 Oncology Institute. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oncology Institute has no effect on the direction of Encompass Health i.e., Encompass Health and Oncology Institute go up and down completely randomly.

Pair Corralation between Encompass Health and Oncology Institute

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 0.19 times more return on investment than Oncology Institute. However, Encompass Health Corp is 5.26 times less risky than Oncology Institute. It trades about 0.12 of its potential returns per unit of risk. Oncology Institute is currently generating about -0.12 per unit of risk. If you would invest  9,310  in Encompass Health Corp on August 31, 2024 and sell it today you would earn a total of  974.00  from holding Encompass Health Corp or generate 10.46% return on investment over 90 days.

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

Encompass Health Corp  vs.  Oncology Institute

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.

Oncology Institute

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oncology Institute has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Encompass Health and Oncology Institute

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

The idea behind Encompass Health Corp and Oncology Institute 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.