Correlation Between HCA Holdings and Tenet Healthcare

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

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

Diversification Opportunities for HCA Holdings and Tenet Healthcare

0.48

Correlation Coefficient

HCA Holdings  Tenet Healthcare

Very weak diversification

The 3 months correlation between HCA and Tenet is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding HCA Holdings and Tenet Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenet Healthcare 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 Tenet Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenet Healthcare has no effect on the direction of HCA Holdings i.e., HCA Holdings and Tenet Healthcare go up and down completely randomly.

Pair Corralation between HCA Holdings and Tenet Healthcare

Considering the 90-day investment horizon HCA Holdings is expected to generate 0.84 times more return on investment than Tenet Healthcare. However, HCA Holdings is 1.19 times less risky than Tenet Healthcare. It trades about 0.1 of its potential returns per unit of risk. Tenet Healthcare is currently generating about 0.04 per unit of risk. If you would invest  30,208  in HCA Holdings on December 26, 2024 and sell it today you would earn a total of  3,521  from holding HCA Holdings or generate 11.66% return on investment over 90 days.

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

HCA Holdings  vs.  Tenet Healthcare

HCA Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HCA Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, HCA Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Tenet Healthcare

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tenet Healthcare are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Tenet Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HCA Holdings and Tenet Healthcare

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

The idea behind HCA Holdings and Tenet Healthcare 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.