Correlation Between Option Care and Encompass Health

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

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

Diversification Opportunities for Option Care and Encompass Health

-0.88

Correlation Coefficient

Option Care  Encompass Health

Pay attention - limited upside

The 3 months correlation between Option and Encompass is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Option Care Health 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 Option Care 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 Option Care Health 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 Option Care i.e., Option Care and Encompass Health go up and down completely randomly.

Pair Corralation between Option Care and Encompass Health

Given the investment horizon of 90 days Option Care Health is expected to under-perform the Encompass Health. In addition to that, Option Care is 2.48 times more volatile than Encompass Health Corp. It trades about -0.12 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	Significant
Accuracy	98.44%
Values	Daily Returns

Option Care Health  vs.  Encompass Health Corp

Option Care Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Option Care Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 Option Care and Encompass Health

The main advantage of trading using opposite Option Care and Encompass Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Option Care 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 Option Care Health 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.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.