Correlation Between Community Health and Ensign

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

Diversification Opportunities for Community Health and Ensign

-0.51
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Community and Ensign is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Community Health Systems and The Ensign Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ensign Group and Community Health 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 Community Health Systems are associated (or correlated) with Ensign. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ensign Group has no effect on the direction of Community Health i.e., Community Health and Ensign go up and down completely randomly.

Pair Corralation between Community Health and Ensign

Considering the 90-day investment horizon Community Health Systems is expected to under-perform the Ensign. In addition to that, Community Health is 3.88 times more volatile than The Ensign Group. It trades about -0.01 of its total potential returns per unit of risk. The Ensign Group is currently generating about 0.05 per unit of volatility. If you would invest  8,662  in The Ensign Group on December 29, 2023 and sell it today you would earn a total of  3,900  from holding The Ensign Group or generate 45.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Community Health Systems  vs.  The Ensign Group

 Performance 
       Timeline  
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.
Ensign Group 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in The Ensign Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Ensign may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Community Health and Ensign Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Community Health and Ensign

The main advantage of trading using opposite Community Health and Ensign positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Community Health position performs unexpectedly, Ensign 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 Ensign will offset losses from the drop in Ensign's long position.
The idea behind Community Health Systems and The Ensign 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.
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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