Correlation Between Nextgen Healthcare and Evolent Health

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

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

Diversification Opportunities for Nextgen Healthcare and Evolent Health

0.6

Correlation Coefficient

Nextgen Healthcare  Evolent Health

Poor diversification

The 3 months correlation between Nextgen and Evolent is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Nextgen Healthcare and Evolent Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolent Health and Nextgen 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 Nextgen Healthcare are associated (or correlated) with Evolent Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolent Health has no effect on the direction of Nextgen Healthcare i.e., Nextgen Healthcare and Evolent Health go up and down completely randomly.

Pair Corralation between Nextgen Healthcare and Evolent Health

Given the investment horizon of 90 days Nextgen Healthcare is expected to generate 0.38 times more return on investment than Evolent Health. However, Nextgen Healthcare is 2.65 times less risky than Evolent Health. It trades about -0.07 of its potential returns per unit of risk. Evolent Health is currently generating about -0.04 per unit of risk. If you would invest  1,876  in Nextgen Healthcare on November 1, 2024 and sell it today you would lose (223.00) from holding Nextgen Healthcare or give up 11.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	22.92%
Values	Daily Returns

Nextgen Healthcare  vs.  Evolent Health

Nextgen Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

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

Evolent Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolent Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Nextgen Healthcare and Evolent Health

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

The idea behind Nextgen Healthcare and Evolent Health 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.