Correlation Between Lifestance Health and Community Health

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

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

Diversification Opportunities for Lifestance Health and Community Health

0.7

Correlation Coefficient

Lifestance Health  Community Health

Poor diversification

The 3 months correlation between Lifestance and Community is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Lifestance Health Group and Community Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Health Systems and Lifestance Health 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 Lifestance Health Group are associated (or correlated) with Community Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Health Systems has no effect on the direction of Lifestance Health i.e., Lifestance Health and Community Health go up and down completely randomly.

Pair Corralation between Lifestance Health and Community Health

Given the investment horizon of 90 days Lifestance Health Group is expected to under-perform the Community Health. But the stock apears to be less risky and, when comparing its historical volatility, Lifestance Health Group is 2.08 times less risky than Community Health. The stock trades about -0.08 of its potential returns per unit of risk. The Community Health Systems is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  301.00  in Community Health Systems on December 30, 2024 and sell it today you would lose (31.00) from holding Community Health Systems or give up 10.3% of portfolio value over 90 days.

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

Lifestance Health Group  vs.  Community Health Systems

Lifestance Health

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lifestance Health Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Community Health Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community Health Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Lifestance Health and Community Health

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

The idea behind Lifestance Health Group and Community Health Systems 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.