Correlation Between EGF Theramed and HealthStream

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

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

Diversification Opportunities for EGF Theramed and HealthStream

-0.15

Correlation Coefficient

EGF Theramed  HealthStream

Good diversification

The 3 months correlation between EGF and HealthStream is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding EGF Theramed Health and HealthStream in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HealthStream and EGF Theramed 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 EGF Theramed Health are associated (or correlated) with HealthStream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HealthStream has no effect on the direction of EGF Theramed i.e., EGF Theramed and HealthStream go up and down completely randomly.

Pair Corralation between EGF Theramed and HealthStream

Assuming the 90 days horizon EGF Theramed Health is expected to generate 29.98 times more return on investment than HealthStream. However, EGF Theramed is 29.98 times more volatile than HealthStream. It trades about 0.11 of its potential returns per unit of risk. HealthStream is currently generating about 0.02 per unit of risk. If you would invest  10.00  in EGF Theramed Health on December 29, 2024 and sell it today you would lose (2.50) from holding EGF Theramed Health or give up 25.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

EGF Theramed Health  vs.  HealthStream

EGF Theramed Health

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EGF Theramed Health are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical indicators, EGF Theramed reported solid returns over the last few months and may actually be approaching a breakup point.

HealthStream

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HealthStream are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, HealthStream is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with EGF Theramed and HealthStream

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

The idea behind EGF Theramed Health and HealthStream 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.