Correlation Between Healthcare Services and Acadia Healthcare

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

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

Diversification Opportunities for Healthcare Services and Acadia Healthcare

0.61

Correlation Coefficient

Healthcare Services  Acadia Healthcare

Poor diversification

The 3 months correlation between Healthcare and Acadia is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Services Group and Acadia Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acadia Healthcare and Healthcare Services 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 Healthcare Services Group are associated (or correlated) with Acadia Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acadia Healthcare has no effect on the direction of Healthcare Services i.e., Healthcare Services and Acadia Healthcare go up and down completely randomly.

Pair Corralation between Healthcare Services and Acadia Healthcare

Given the investment horizon of 90 days Healthcare Services Group is expected to generate 0.43 times more return on investment than Acadia Healthcare. However, Healthcare Services Group is 2.32 times less risky than Acadia Healthcare. It trades about -0.09 of its potential returns per unit of risk. Acadia Healthcare is currently generating about -0.08 per unit of risk. If you would invest  1,152  in Healthcare Services Group on December 30, 2024 and sell it today you would lose (117.00) from holding Healthcare Services Group or give up 10.16% of portfolio value over 90 days.

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

Healthcare Services Group  vs.  Acadia Healthcare

Healthcare Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Healthcare Services Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Acadia Healthcare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Acadia Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Healthcare Services and Acadia Healthcare

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

The idea behind Healthcare Services Group and Acadia 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.