Correlation Between Evolent Health and HealthStream

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

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

Diversification Opportunities for Evolent Health and HealthStream

-0.87

Correlation Coefficient

Evolent Health  HealthStream

Pay attention - limited upside

The 3 months correlation between Evolent and HealthStream is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Evolent Health and HealthStream in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HealthStream 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 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 Evolent Health i.e., Evolent Health and HealthStream go up and down completely randomly.

Pair Corralation between Evolent Health and HealthStream

Considering the 90-day investment horizon Evolent Health is expected to under-perform the HealthStream. In addition to that, Evolent Health is 4.02 times more volatile than HealthStream. It trades about -0.16 of its total potential returns per unit of risk. HealthStream is currently generating about 0.14 per unit of volatility. If you would invest  2,866  in HealthStream on September 2, 2024 and sell it today you would earn a total of  444.00  from holding HealthStream or generate 15.49% return on investment over 90 days.

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

Evolent Health  vs.  HealthStream

Evolent Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolent Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

HealthStream

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HealthStream are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, HealthStream displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Evolent Health and HealthStream

The main advantage of trading using opposite Evolent Health and HealthStream positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evolent Health 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 Evolent 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.

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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.