Correlation Between Mednax and Encompass Health

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

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

Diversification Opportunities for Mednax and Encompass Health

0.9

Correlation Coefficient

Mednax  Encompass Health

Almost no diversification

The 3 months correlation between Mednax and Encompass is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Mednax Inc 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 Mednax 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 Mednax Inc 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 Mednax i.e., Mednax and Encompass Health go up and down completely randomly.

Pair Corralation between Mednax and Encompass Health

Allowing for the 90-day total investment horizon Mednax Inc is expected to generate 2.56 times more return on investment than Encompass Health. However, Mednax is 2.56 times more volatile than Encompass Health Corp. It trades about 0.16 of its potential returns per unit of risk. Encompass Health Corp is currently generating about 0.12 per unit of risk. If you would invest  1,066  in Mednax Inc on September 2, 2024 and sell it today you would earn a total of  430.00  from holding Mednax Inc or generate 40.34% return on investment over 90 days.

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

Mednax Inc  vs.  Encompass Health Corp

Mednax Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mednax Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Mednax exhibited solid returns over the last few months and may actually be approaching a breakup point.

Encompass Health Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 9 (%) 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 January 2025.

Pair Trading with Mednax and Encompass Health

The main advantage of trading using opposite Mednax and Encompass Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mednax 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 Mednax Inc 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.