Correlation Between ESH Acquisition and SunLink Health

Can any of the company-specific risk be diversified away by investing in both ESH Acquisition and SunLink 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 ESH Acquisition and SunLink Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ESH Acquisition Corp and SunLink Health Systems, you can compare the effects of market volatilities on ESH Acquisition and SunLink 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 ESH Acquisition with a short position of SunLink Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESH Acquisition and SunLink Health.

Diversification Opportunities for ESH Acquisition and SunLink Health

0.21

Correlation Coefficient

ESH Acquisition  SunLink Health

Modest diversification

The 3 months correlation between ESH and SunLink is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding ESH Acquisition Corp and SunLink Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SunLink Health Systems and ESH Acquisition 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 ESH Acquisition Corp are associated (or correlated) with SunLink Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SunLink Health Systems has no effect on the direction of ESH Acquisition i.e., ESH Acquisition and SunLink Health go up and down completely randomly.

Pair Corralation between ESH Acquisition and SunLink Health

Given the investment horizon of 90 days ESH Acquisition Corp is expected to generate 0.04 times more return on investment than SunLink Health. However, ESH Acquisition Corp is 26.42 times less risky than SunLink Health. It trades about -0.14 of its potential returns per unit of risk. SunLink Health Systems is currently generating about -0.08 per unit of risk. If you would invest  1,066  in ESH Acquisition Corp on September 4, 2024 and sell it today you would lose (6.00) from holding ESH Acquisition Corp or give up 0.56% of portfolio value over 90 days.

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

ESH Acquisition Corp  vs.  SunLink Health Systems

ESH Acquisition Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESH Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, ESH Acquisition is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SunLink Health Systems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SunLink Health Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, SunLink Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ESH Acquisition and SunLink Health

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

The idea behind ESH Acquisition Corp and SunLink Health Systems 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.