Correlation Between Premier and HealthStream

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

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

Diversification Opportunities for Premier and HealthStream

-0.54

Correlation Coefficient

Premier  HealthStream

Excellent diversification

The 3 months correlation between Premier and HealthStream is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Premier and HealthStream in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HealthStream and Premier 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 Premier are associated (or correlated) with HealthStream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HealthStream has no effect on the direction of Premier i.e., Premier and HealthStream go up and down completely randomly.

Pair Corralation between Premier and HealthStream

Given the investment horizon of 90 days Premier is expected to under-perform the HealthStream. In addition to that, Premier is 2.89 times more volatile than HealthStream. It trades about -0.3 of its total potential returns per unit of risk. HealthStream is currently generating about 0.03 per unit of volatility. If you would invest  3,219  in HealthStream on November 28, 2024 and sell it today you would earn a total of  18.00  from holding HealthStream or generate 0.56% return on investment over 90 days.

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

Premier  vs.  HealthStream

Premier

Risk-Adjusted Performance

Very Weak

Over the last 90 days Premier has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

HealthStream

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Premier and HealthStream

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

The idea behind Premier and HealthStream 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.