Correlation Between Select Medical and Life Healthcare

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

Diversification Opportunities for Select Medical and Life Healthcare

0.56

Correlation Coefficient

Select Medical  Life Healthcare

Very weak diversification

The 3 months correlation between Select and Life is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Select Medical Holdings and Life Healthcare Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Healthcare Group 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 Life Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Healthcare Group has no effect on the direction of Select Medical i.e., Select Medical and Life Healthcare go up and down completely randomly.

Pair Corralation between Select Medical and Life Healthcare

Considering the 90-day investment horizon Select Medical Holdings is expected to under-perform the Life Healthcare. In addition to that, Select Medical is 1.12 times more volatile than Life Healthcare Group. It trades about -0.13 of its total potential returns per unit of risk. Life Healthcare Group is currently generating about -0.05 per unit of volatility. If you would invest  336.00  in Life Healthcare Group on November 29, 2024 and sell it today you would lose (12.00) from holding Life Healthcare Group or give up 3.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Select Medical Holdings  vs.  Life Healthcare Group

Select Medical Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Select Medical Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Life Healthcare Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Life Healthcare Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Select Medical and Life Healthcare

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

The idea behind Select Medical Holdings and Life Healthcare 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.