Correlation Between Encompass Health and InnovAge Holding

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

By analyzing existing cross correlation between Encompass Health Corp and InnovAge Holding Corp, you can compare the effects of market volatilities on Encompass Health and InnovAge Holding 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 Encompass Health with a short position of InnovAge Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Encompass Health and InnovAge Holding.

Diversification Opportunities for Encompass Health and InnovAge Holding

-0.83

Correlation Coefficient

Encompass Health  InnovAge Holding

Pay attention - limited upside

The 3 months correlation between Encompass and InnovAge is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and InnovAge Holding Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InnovAge Holding Corp and Encompass 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 Encompass Health Corp are associated (or correlated) with InnovAge Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InnovAge Holding Corp has no effect on the direction of Encompass Health i.e., Encompass Health and InnovAge Holding go up and down completely randomly.

Pair Corralation between Encompass Health and InnovAge Holding

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 0.37 times more return on investment than InnovAge Holding. However, Encompass Health Corp is 2.72 times less risky than InnovAge Holding. It trades about 0.13 of its potential returns per unit of risk. InnovAge Holding Corp is currently generating about -0.09 per unit of risk. If you would invest  7,722  in Encompass Health Corp on February 6, 2024 and sell it today you would earn a total of  599.00  from holding Encompass Health Corp or generate 7.76% return on investment over 90 days.

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

Encompass Health Corp  vs.  InnovAge Holding Corp

Encompass Health Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, Encompass Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

InnovAge Holding Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InnovAge Holding Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in June 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Encompass Health and InnovAge Holding

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

The idea behind Encompass Health Corp and InnovAge Holding 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.