Correlation Between InnovAge Holding and Encompass Health

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

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

Diversification Opportunities for InnovAge Holding and Encompass Health

-0.45

Correlation Coefficient

InnovAge Holding  Encompass Health

Very good diversification

The 3 months correlation between InnovAge and Encompass is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding InnovAge Holding Corp 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 InnovAge Holding 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 InnovAge Holding Corp 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 InnovAge Holding i.e., InnovAge Holding and Encompass Health go up and down completely randomly.

Pair Corralation between InnovAge Holding and Encompass Health

Given the investment horizon of 90 days InnovAge Holding Corp is expected to under-perform the Encompass Health. In addition to that, InnovAge Holding is 1.98 times more volatile than Encompass Health Corp. It trades about -0.15 of its total potential returns per unit of risk. Encompass Health Corp is currently generating about 0.13 per unit of volatility. If you would invest  9,289  in Encompass Health Corp on August 30, 2024 and sell it today you would earn a total of  1,088  from holding Encompass Health Corp or generate 11.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

InnovAge Holding Corp  vs.  Encompass Health Corp

InnovAge Holding Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InnovAge Holding Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in December 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Encompass Health Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical indicators, Encompass Health may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with InnovAge Holding and Encompass Health

The main advantage of trading using opposite InnovAge Holding and Encompass Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InnovAge Holding 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 InnovAge Holding Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.