Correlation Between Healthcare Services and Chemed Corp

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

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

Diversification Opportunities for Healthcare Services and Chemed Corp

0.61

Correlation Coefficient

Healthcare Services  Chemed Corp

Poor diversification

The 3 months correlation between Healthcare and Chemed is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Services Group and Chemed Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chemed Corp and Healthcare Services 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 Healthcare Services Group are associated (or correlated) with Chemed Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chemed Corp has no effect on the direction of Healthcare Services i.e., Healthcare Services and Chemed Corp go up and down completely randomly.

Pair Corralation between Healthcare Services and Chemed Corp

Given the investment horizon of 90 days Healthcare Services Group is expected to under-perform the Chemed Corp. But the stock apears to be less risky and, when comparing its historical volatility, Healthcare Services Group is 1.02 times less risky than Chemed Corp. The stock trades about -0.37 of its potential returns per unit of risk. The Chemed Corp is currently generating about -0.31 of returns per unit of risk over similar time horizon. If you would invest  64,063  in Chemed Corp on January 31, 2024 and sell it today you would lose (7,412) from holding Chemed Corp or give up 11.57% of portfolio value over 90 days.

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

Healthcare Services Group  vs.  Chemed Corp

Healthcare Services

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Healthcare Services Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Healthcare Services reported solid returns over the last few months and may actually be approaching a breakup point.

Chemed Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chemed Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Chemed Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Healthcare Services and Chemed Corp

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

The idea behind Healthcare Services Group and Chemed 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.