Correlation Between HealthStream and HealthEquity

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

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

Diversification Opportunities for HealthStream and HealthEquity

0.89

Correlation Coefficient

HealthStream  HealthEquity

Very poor diversification

The 3 months correlation between HealthStream and HealthEquity is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding HealthStream and HealthEquity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HealthEquity 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 HealthEquity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HealthEquity has no effect on the direction of HealthStream i.e., HealthStream and HealthEquity go up and down completely randomly.

Pair Corralation between HealthStream and HealthEquity

Given the investment horizon of 90 days HealthStream is expected to generate 1.78 times less return on investment than HealthEquity. But when comparing it to its historical volatility, HealthStream is 1.34 times less risky than HealthEquity. It trades about 0.14 of its potential returns per unit of risk. HealthEquity is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  7,863  in HealthEquity on September 2, 2024 and sell it today you would earn a total of  2,291  from holding HealthEquity or generate 29.14% return on investment over 90 days.

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

HealthStream  vs.  HealthEquity

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.

HealthEquity

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HealthEquity are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, HealthEquity showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HealthStream and HealthEquity

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

The idea behind HealthStream and HealthEquity 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.