Correlation Between Select Medical and Cardinal Health

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

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

Diversification Opportunities for Select Medical and Cardinal Health

0.27

Correlation Coefficient

Select Medical  Cardinal Health

Modest diversification

The 3 months correlation between Select and Cardinal is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Select Medical Holdings and Cardinal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Health and Select Medical 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 Select Medical Holdings are associated (or correlated) with Cardinal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Health has no effect on the direction of Select Medical i.e., Select Medical and Cardinal Health go up and down completely randomly.

Pair Corralation between Select Medical and Cardinal Health

Considering the 90-day investment horizon Select Medical Holdings is expected to generate 1.78 times more return on investment than Cardinal Health. However, Select Medical is 1.78 times more volatile than Cardinal Health. It trades about 0.14 of its potential returns per unit of risk. Cardinal Health is currently generating about -0.3 per unit of risk. If you would invest  2,974  in Select Medical Holdings on February 7, 2024 and sell it today you would earn a total of  237.00  from holding Select Medical Holdings or generate 7.97% return on investment over 90 days.

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

Select Medical Holdings  vs.  Cardinal Health

Select Medical Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Select Medical Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Select Medical displayed solid returns over the last few months and may actually be approaching a breakup point.

Cardinal Health

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Select Medical and Cardinal Health

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

The idea behind Select Medical Holdings and Cardinal 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.