Correlation Between Life Healthcare and Sebata Holdings

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

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

Diversification Opportunities for Life Healthcare and Sebata Holdings

-0.4

Correlation Coefficient

Life Healthcare  Sebata Holdings

Very good diversification

The 3 months correlation between Life and Sebata is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Life Healthcare and Sebata Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sebata Holdings and Life Healthcare 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 Life Healthcare are associated (or correlated) with Sebata Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sebata Holdings has no effect on the direction of Life Healthcare i.e., Life Healthcare and Sebata Holdings go up and down completely randomly.

Pair Corralation between Life Healthcare and Sebata Holdings

Assuming the 90 days trading horizon Life Healthcare is expected to generate 0.43 times more return on investment than Sebata Holdings. However, Life Healthcare is 2.33 times less risky than Sebata Holdings. It trades about 0.0 of its potential returns per unit of risk. Sebata Holdings is currently generating about -0.03 per unit of risk. If you would invest  166,300  in Life Healthcare on September 26, 2024 and sell it today you would lose (900.00) from holding Life Healthcare or give up 0.54% of portfolio value over 90 days.

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

Life Healthcare  vs.  Sebata Holdings

Life Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Life Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sebata Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sebata Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Life Healthcare and Sebata Holdings

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

The idea behind Life Healthcare and Sebata Holdings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.