Correlation Between Select Medical and Addus HomeCare

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

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

Diversification Opportunities for Select Medical and Addus HomeCare

-0.44

Correlation Coefficient

Select Medical  Addus HomeCare

Very good diversification

The 3 months correlation between Select and Addus is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Select Medical Holdings and Addus HomeCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addus HomeCare and Select Medical 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 Select Medical Holdings are associated (or correlated) with Addus HomeCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addus HomeCare has no effect on the direction of Select Medical i.e., Select Medical and Addus HomeCare go up and down completely randomly.

Pair Corralation between Select Medical and Addus HomeCare

Considering the 90-day investment horizon Select Medical Holdings is expected to generate 1.47 times more return on investment than Addus HomeCare. However, Select Medical is 1.47 times more volatile than Addus HomeCare. It trades about 0.07 of its potential returns per unit of risk. Addus HomeCare is currently generating about 0.04 per unit of risk. If you would invest  1,821  in Select Medical Holdings on August 30, 2024 and sell it today you would earn a total of  313.00  from holding Select Medical Holdings or generate 17.19% return on investment over 90 days.

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

Select Medical Holdings  vs.  Addus HomeCare

Select Medical Holdings

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Medical Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Select Medical may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Addus HomeCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Addus HomeCare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Select Medical and Addus HomeCare

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

The idea behind Select Medical Holdings and Addus HomeCare 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.