Correlation Between Encompass Health and Option Care

Can any of the company-specific risk be diversified away by investing in both Encompass Health and Option Care 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 Option Care 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 Option Care Health, you can compare the effects of market volatilities on Encompass Health and Option Care 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 Option Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Encompass Health and Option Care.

Diversification Opportunities for Encompass Health and Option Care

-0.55

Correlation Coefficient

Encompass Health  Option Care

Excellent diversification

The 3 months correlation between Encompass and Option is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and Option Care Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Option Care Health 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 Option Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Option Care Health has no effect on the direction of Encompass Health i.e., Encompass Health and Option Care go up and down completely randomly.

Pair Corralation between Encompass Health and Option Care

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 0.58 times more return on investment than Option Care. However, Encompass Health Corp is 1.73 times less risky than Option Care. It trades about 0.0 of its potential returns per unit of risk. Option Care Health is currently generating about -0.19 per unit of risk. If you would invest  8,336  in Encompass Health Corp on February 5, 2024 and sell it today you would lose (15.00) from holding Encompass Health Corp or give up 0.18% of portfolio value over 90 days.

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

Encompass Health Corp  vs.  Option Care Health

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 fragile technical indicators, Encompass Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Option Care Health

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Encompass Health and Option Care

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

The idea behind Encompass Health Corp and Option Care Health 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.