Correlation Between Chemed Corp and Community Health

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Can any of the company-specific risk be diversified away by investing in both Chemed Corp and Community Health 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 Chemed Corp and Community Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chemed Corp and Community Health Systems, you can compare the effects of market volatilities on Chemed Corp and Community Health 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 Chemed Corp with a short position of Community Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chemed Corp and Community Health.

Diversification Opportunities for Chemed Corp and Community Health

-0.54
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Chemed and Community is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Chemed Corp and Community Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Health Systems and Chemed Corp 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 Chemed Corp are associated (or correlated) with Community Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Health Systems has no effect on the direction of Chemed Corp i.e., Chemed Corp and Community Health go up and down completely randomly.

Pair Corralation between Chemed Corp and Community Health

Considering the 90-day investment horizon Chemed Corp is expected to generate 0.21 times more return on investment than Community Health. However, Chemed Corp is 4.67 times less risky than Community Health. It trades about 0.04 of its potential returns per unit of risk. Community Health Systems is currently generating about 0.0 per unit of risk. If you would invest  50,216  in Chemed Corp on December 30, 2023 and sell it today you would earn a total of  13,977  from holding Chemed Corp or generate 27.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Chemed Corp  vs.  Community Health Systems

 Performance 
       Timeline  
Chemed Corp 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Chemed Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical indicators, Chemed Corp may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Community Health Systems 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Community Health Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal basic indicators, Community Health demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Chemed Corp and Community Health Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Chemed Corp and Community Health

The main advantage of trading using opposite Chemed Corp and Community Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chemed Corp position performs unexpectedly, Community Health 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 Community Health will offset losses from the drop in Community Health's long position.
The idea behind Chemed Corp and Community Health Systems 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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