Correlation Between Fresenius and Life Healthcare

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

By analyzing existing cross correlation between Fresenius SE Co and Life Healthcare Group, you can compare the effects of market volatilities on Fresenius and Life Healthcare 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 Fresenius with a short position of Life Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fresenius and Life Healthcare.

Diversification Opportunities for Fresenius and Life Healthcare

-0.63

Correlation Coefficient

Fresenius  Life Healthcare

Excellent diversification

The 3 months correlation between Fresenius and Life is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Fresenius SE Co and Life Healthcare Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Healthcare Group and Fresenius 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 Fresenius SE Co are associated (or correlated) with Life Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Healthcare Group has no effect on the direction of Fresenius i.e., Fresenius and Life Healthcare go up and down completely randomly.

Pair Corralation between Fresenius and Life Healthcare

Assuming the 90 days horizon Fresenius SE Co is expected to generate 0.5 times more return on investment than Life Healthcare. However, Fresenius SE Co is 2.01 times less risky than Life Healthcare. It trades about 0.15 of its potential returns per unit of risk. Life Healthcare Group is currently generating about -0.06 per unit of risk. If you would invest  885.00  in Fresenius SE Co on November 29, 2024 and sell it today you would earn a total of  108.00  from holding Fresenius SE Co or generate 12.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Fresenius SE Co  vs.  Life Healthcare Group

Fresenius SE

Risk-Adjusted Performance

Good

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

Life Healthcare Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Life Healthcare Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Fresenius and Life Healthcare

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

The idea behind Fresenius SE Co and Life Healthcare Group 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.