Correlation Between Evolent Health and EGF Theramed

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

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

Diversification Opportunities for Evolent Health and EGF Theramed

0.35

Correlation Coefficient

Evolent Health  EGF Theramed

Weak diversification

The 3 months correlation between Evolent and EGF is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Evolent Health and EGF Theramed Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EGF Theramed Health and Evolent 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 Evolent Health are associated (or correlated) with EGF Theramed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EGF Theramed Health has no effect on the direction of Evolent Health i.e., Evolent Health and EGF Theramed go up and down completely randomly.

Pair Corralation between Evolent Health and EGF Theramed

Considering the 90-day investment horizon Evolent Health is expected to under-perform the EGF Theramed. But the stock apears to be less risky and, when comparing its historical volatility, Evolent Health is 11.14 times less risky than EGF Theramed. The stock trades about -0.05 of its potential returns per unit of risk. The EGF Theramed Health is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10.00  in EGF Theramed Health on December 27, 2024 and sell it today you would lose (5.10) from holding EGF Theramed Health or give up 51.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Evolent Health  vs.  EGF Theramed Health

Evolent Health

Risk-Adjusted Performance

Very Weak

Over the last 90 days Evolent Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

EGF Theramed Health

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EGF Theramed Health are ranked lower than 6 (%) 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.

Pair Trading with Evolent Health and EGF Theramed

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

The idea behind Evolent Health and EGF Theramed Health 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.