Correlation Between HealthStream and M3

Can any of the company-specific risk be diversified away by investing in both HealthStream and M3 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 M3 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HealthStream and M3 Inc, you can compare the effects of market volatilities on HealthStream and M3 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 M3. Check out your portfolio center. Please also check ongoing floating volatility patterns of HealthStream and M3.

Diversification Opportunities for HealthStream and M3

-0.02

Correlation Coefficient

HealthStream  M3

Good diversification

The 3 months correlation between HealthStream and M3 is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding HealthStream and M3 Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M3 Inc 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 M3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M3 Inc has no effect on the direction of HealthStream i.e., HealthStream and M3 go up and down completely randomly.

Pair Corralation between HealthStream and M3

Given the investment horizon of 90 days HealthStream is expected to generate 9.88 times less return on investment than M3. But when comparing it to its historical volatility, HealthStream is 1.32 times less risky than M3. It trades about 0.02 of its potential returns per unit of risk. M3 Inc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  833.00  in M3 Inc on December 29, 2024 and sell it today you would earn a total of  112.00  from holding M3 Inc or generate 13.45% return on investment over 90 days.

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

HealthStream  vs.  M3 Inc

HealthStream

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HealthStream are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, HealthStream is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

M3 Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in M3 Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, M3 reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HealthStream and M3

The main advantage of trading using opposite HealthStream and M3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HealthStream position performs unexpectedly, M3 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 M3 will offset losses from the drop in M3's long position.

The idea behind HealthStream and M3 Inc 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.