Correlation Between Healthcare Services and Encompass Health

Can any of the company-specific risk be diversified away by investing in both Healthcare Services and Encompass 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 Healthcare Services and Encompass Health 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 Encompass Health Corp, you can compare the effects of market volatilities on Healthcare Services and Encompass 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 Healthcare Services with a short position of Encompass Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Healthcare Services and Encompass Health.

Diversification Opportunities for Healthcare Services and Encompass Health

-0.76

Correlation Coefficient

Healthcare Services  Encompass Health

Pay attention - limited upside

The 3 months correlation between Healthcare and Encompass is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Services Group and Encompass Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encompass Health Corp 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 Encompass Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encompass Health Corp has no effect on the direction of Healthcare Services i.e., Healthcare Services and Encompass Health go up and down completely randomly.

Pair Corralation between Healthcare Services and Encompass Health

Given the investment horizon of 90 days Healthcare Services Group is expected to under-perform the Encompass Health. In addition to that, Healthcare Services is 1.25 times more volatile than Encompass Health Corp. It trades about -0.09 of its total potential returns per unit of risk. Encompass Health Corp is currently generating about 0.11 per unit of volatility. If you would invest  9,225  in Encompass Health Corp on December 30, 2024 and sell it today you would earn a total of  853.00  from holding Encompass Health Corp or generate 9.25% return on investment over 90 days.

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

Healthcare Services Group  vs.  Encompass Health Corp

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.

Encompass Health Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Encompass Health may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Healthcare Services and Encompass Health

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

The idea behind Healthcare Services Group and Encompass Health Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.