Correlation Between HealthStream and Evolent Health

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

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

Diversification Opportunities for HealthStream and Evolent Health

-0.86

Correlation Coefficient

HealthStream  Evolent Health

Pay attention - limited upside

The 3 months correlation between HealthStream and Evolent is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding HealthStream and Evolent Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolent Health and HealthStream 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 HealthStream are associated (or correlated) with Evolent Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolent Health has no effect on the direction of HealthStream i.e., HealthStream and Evolent Health go up and down completely randomly.

Pair Corralation between HealthStream and Evolent Health

Given the investment horizon of 90 days HealthStream is expected to generate 0.25 times more return on investment than Evolent Health. However, HealthStream is 4.02 times less risky than Evolent Health. It trades about 0.14 of its potential returns per unit of risk. Evolent Health is currently generating about -0.16 per unit of risk. If you would invest  2,866  in HealthStream on August 31, 2024 and sell it today you would earn a total of  437.00  from holding HealthStream or generate 15.25% return on investment over 90 days.

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

HealthStream  vs.  Evolent Health

HealthStream

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HealthStream are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, HealthStream displayed solid returns over the last few months and may actually be approaching a breakup point.

Evolent Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolent Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with HealthStream and Evolent Health

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

The idea behind HealthStream and Evolent Health 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.