Correlation Between Globe Life and EHealth

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

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

Diversification Opportunities for Globe Life and EHealth

0.6

Correlation Coefficient

Globe Life  EHealth

Poor diversification

The 3 months correlation between Globe and EHealth is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Globe Life and eHealth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eHealth and Globe Life 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 Globe Life are associated (or correlated) with EHealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eHealth has no effect on the direction of Globe Life i.e., Globe Life and EHealth go up and down completely randomly.

Pair Corralation between Globe Life and EHealth

Allowing for the 90-day total investment horizon Globe Life is expected to generate 1.38 times less return on investment than EHealth. But when comparing it to its historical volatility, Globe Life is 3.99 times less risky than EHealth. It trades about 0.49 of its potential returns per unit of risk. eHealth is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  876.00  in eHealth on October 26, 2024 and sell it today you would earn a total of  99.00  from holding eHealth or generate 11.3% return on investment over 90 days.

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

Globe Life  vs.  eHealth

Globe Life

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Globe Life are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Globe Life disclosed solid returns over the last few months and may actually be approaching a breakup point.

eHealth

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in eHealth are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, EHealth demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Globe Life and EHealth

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

The idea behind Globe Life and eHealth 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.