Correlation Between Select Medical and Chemed Corp

Can any of the company-specific risk be diversified away by investing in both Select Medical and Chemed Corp 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 Chemed Corp 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 Chemed Corp, you can compare the effects of market volatilities on Select Medical and Chemed Corp 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 Chemed Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Medical and Chemed Corp.

Diversification Opportunities for Select Medical and Chemed Corp

-0.14

Correlation Coefficient

Select Medical  Chemed Corp

Good diversification

The 3 months correlation between Select and Chemed is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Select Medical Holdings and Chemed Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chemed Corp 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 Chemed Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chemed Corp has no effect on the direction of Select Medical i.e., Select Medical and Chemed Corp go up and down completely randomly.

Pair Corralation between Select Medical and Chemed Corp

Considering the 90-day investment horizon Select Medical Holdings is expected to generate 1.55 times more return on investment than Chemed Corp. However, Select Medical is 1.55 times more volatile than Chemed Corp. It trades about 0.04 of its potential returns per unit of risk. Chemed Corp is currently generating about 0.02 per unit of risk. If you would invest  1,441  in Select Medical Holdings on October 21, 2024 and sell it today you would earn a total of  466.00  from holding Select Medical Holdings or generate 32.34% return on investment over 90 days.

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

Select Medical Holdings  vs.  Chemed Corp

Select Medical Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Medical Holdings are ranked lower than 4 (%) 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 February 2025.

Chemed Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chemed Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Select Medical and Chemed Corp

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

The idea behind Select Medical Holdings and Chemed Corp 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.