Correlation Between HCA Holdings and Community Health

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

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

Diversification Opportunities for HCA Holdings and Community Health

0.66

Correlation Coefficient

HCA Holdings  Community Health

Poor diversification

The 3 months correlation between HCA and Community is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding HCA Holdings and Community Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Health Systems and HCA Holdings 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 HCA Holdings are associated (or correlated) with Community Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Health Systems has no effect on the direction of HCA Holdings i.e., HCA Holdings and Community Health go up and down completely randomly.

Pair Corralation between HCA Holdings and Community Health

Considering the 90-day investment horizon HCA Holdings is expected to generate 2.9 times less return on investment than Community Health. But when comparing it to its historical volatility, HCA Holdings is 1.74 times less risky than Community Health. It trades about 0.03 of its potential returns per unit of risk. Community Health Systems is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  344.00  in Community Health Systems on November 29, 2024 and sell it today you would earn a total of  20.00  from holding Community Health Systems or generate 5.81% return on investment over 90 days.

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

HCA Holdings  vs.  Community Health Systems

HCA Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HCA Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, HCA Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Community Health Systems

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Community Health Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Community Health may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with HCA Holdings and Community Health

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

The idea behind HCA Holdings and Community Health Systems 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 CEOs Directory module to screen CEOs from public companies around the world.