Correlation Between Pennant and Healthcare Services

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

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

Diversification Opportunities for Pennant and Healthcare Services

0.63

Correlation Coefficient

Pennant  Healthcare Services

Poor diversification

The 3 months correlation between Pennant and Healthcare is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Pennant Group and Healthcare Services Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Healthcare Services and Pennant 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 Pennant Group are associated (or correlated) with Healthcare Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Healthcare Services has no effect on the direction of Pennant i.e., Pennant and Healthcare Services go up and down completely randomly.

Pair Corralation between Pennant and Healthcare Services

Given the investment horizon of 90 days Pennant Group is expected to generate 1.57 times more return on investment than Healthcare Services. However, Pennant is 1.57 times more volatile than Healthcare Services Group. It trades about -0.02 of its potential returns per unit of risk. Healthcare Services Group is currently generating about -0.09 per unit of risk. If you would invest  2,622  in Pennant Group on December 30, 2024 and sell it today you would lose (161.00) from holding Pennant Group or give up 6.14% of portfolio value over 90 days.

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

Pennant Group  vs.  Healthcare Services Group

Pennant Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pennant Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Pennant is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Healthcare Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Healthcare Services Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Pennant and Healthcare Services

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

The idea behind Pennant Group and Healthcare Services Group 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.