Correlation Between Optima Health and HCA Healthcare

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

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

Diversification Opportunities for Optima Health and HCA Healthcare

0.48

Correlation Coefficient

Optima Health  HCA Healthcare

Very weak diversification

The 3 months correlation between Optima and HCA is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Optima Health plc and HCA Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCA Healthcare and Optima 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 Optima Health plc are associated (or correlated) with HCA Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCA Healthcare has no effect on the direction of Optima Health i.e., Optima Health and HCA Healthcare go up and down completely randomly.

Pair Corralation between Optima Health and HCA Healthcare

Assuming the 90 days trading horizon Optima Health plc is expected to generate 0.88 times more return on investment than HCA Healthcare. However, Optima Health plc is 1.14 times less risky than HCA Healthcare. It trades about 0.17 of its potential returns per unit of risk. HCA Healthcare is currently generating about 0.11 per unit of risk. If you would invest  14,200  in Optima Health plc on December 30, 2024 and sell it today you would earn a total of  2,900  from holding Optima Health plc or generate 20.42% return on investment over 90 days.

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

Optima Health plc  vs.  HCA Healthcare

Optima Health plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optima Health plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Optima Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

HCA Healthcare

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HCA Healthcare are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, HCA Healthcare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Optima Health and HCA Healthcare

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

The idea behind Optima Health plc and HCA Healthcare 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.