Correlation Between Tenet Healthcare and HCA Holdings

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

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

Diversification Opportunities for Tenet Healthcare and HCA Holdings

0.48

Correlation Coefficient

Tenet Healthcare  HCA Holdings

Very weak diversification

The 3 months correlation between Tenet and HCA is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Tenet Healthcare and HCA Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCA Holdings and Tenet Healthcare 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 Tenet Healthcare are associated (or correlated) with HCA Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCA Holdings has no effect on the direction of Tenet Healthcare i.e., Tenet Healthcare and HCA Holdings go up and down completely randomly.

Pair Corralation between Tenet Healthcare and HCA Holdings

Considering the 90-day investment horizon Tenet Healthcare is expected to generate 2.13 times less return on investment than HCA Holdings. In addition to that, Tenet Healthcare is 1.19 times more volatile than HCA Holdings. It trades about 0.04 of its total potential returns per unit of risk. HCA Holdings is currently generating about 0.1 per unit of volatility. If you would invest  30,208  in HCA Holdings on December 26, 2024 and sell it today you would earn a total of  3,521  from holding HCA Holdings or generate 11.66% return on investment over 90 days.

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

Tenet Healthcare  vs.  HCA Holdings

Tenet Healthcare

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tenet Healthcare are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Tenet Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

HCA Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HCA Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, HCA Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tenet Healthcare and HCA Holdings

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

The idea behind Tenet Healthcare and HCA Holdings 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.