Correlation Between Level and Definitive Healthcare

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

By analyzing existing cross correlation between Level 3 Financing and Definitive Healthcare Corp, you can compare the effects of market volatilities on Level and Definitive 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 Level with a short position of Definitive Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Level and Definitive Healthcare.

Diversification Opportunities for Level and Definitive Healthcare

0.25

Correlation Coefficient

Level  Definitive Healthcare

Modest diversification

The 3 months correlation between Level and Definitive is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Level 3 Financing and Definitive Healthcare Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Definitive Healthcare and Level 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 Level 3 Financing are associated (or correlated) with Definitive Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Definitive Healthcare has no effect on the direction of Level i.e., Level and Definitive Healthcare go up and down completely randomly.

Pair Corralation between Level and Definitive Healthcare

Assuming the 90 days trading horizon Level 3 Financing is expected to generate 4.5 times more return on investment than Definitive Healthcare. However, Level is 4.5 times more volatile than Definitive Healthcare Corp. It trades about 0.03 of its potential returns per unit of risk. Definitive Healthcare Corp is currently generating about 0.0 per unit of risk. If you would invest  8,883  in Level 3 Financing on October 10, 2024 and sell it today you would lose (387.00) from holding Level 3 Financing or give up 4.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	34.43%
Values	Daily Returns

Level 3 Financing  vs.  Definitive Healthcare Corp

Level 3 Financing

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Level 3 Financing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Level sustained solid returns over the last few months and may actually be approaching a breakup point.

Definitive Healthcare

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Definitive Healthcare Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Definitive Healthcare is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Level and Definitive Healthcare

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

The idea behind Level 3 Financing and Definitive Healthcare 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.