Correlation Between Regional Health and Community Health

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

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

Diversification Opportunities for Regional Health and Community Health

-0.46

Correlation Coefficient

Regional Health  Community Health

Very good diversification

The 3 months correlation between Regional and Community is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Regional Health Properties and Community Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Health Systems and Regional 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 Regional Health Properties are associated (or correlated) with Community Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Health Systems has no effect on the direction of Regional Health i.e., Regional Health and Community Health go up and down completely randomly.

Pair Corralation between Regional Health and Community Health

Considering the 90-day investment horizon Regional Health Properties is expected to generate 7.56 times more return on investment than Community Health. However, Regional Health is 7.56 times more volatile than Community Health Systems. It trades about 0.15 of its potential returns per unit of risk. Community Health Systems is currently generating about -0.03 per unit of risk. If you would invest  153.00  in Regional Health Properties on December 30, 2024 and sell it today you would earn a total of  79.00  from holding Regional Health Properties or generate 51.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	40.32%
Values	Daily Returns

Regional Health Properties  vs.  Community Health Systems

Regional Health Prop

Risk-Adjusted Performance

Good

Over the last 90 days Regional Health Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak technical indicators, Regional Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Community Health Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community Health Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Regional Health and Community Health

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

The idea behind Regional Health Properties and Community Health Systems 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.