Correlation Between Encompass Health and US Physicalrapy

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

Diversification Opportunities for Encompass Health and US Physicalrapy

-0.27

Correlation Coefficient

Encompass Health  US Physicalrapy

Very good diversification

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

Pair Corralation between Encompass Health and US Physicalrapy

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 1.23 times more return on investment than US Physicalrapy. However, Encompass Health is 1.23 times more volatile than US Physicalrapy. It trades about 0.13 of its potential returns per unit of risk. US Physicalrapy is currently generating about -0.19 per unit of risk. If you would invest  9,662  in Encompass Health Corp on January 28, 2025 and sell it today you would earn a total of  1,872  from holding Encompass Health Corp or generate 19.37% return on investment over 90 days.

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

Encompass Health Corp  vs.  US Physicalrapy

Encompass Health Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 10 (%) 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.

US Physicalrapy

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Physicalrapy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Encompass Health and US Physicalrapy

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

The idea behind Encompass Health Corp and US Physicalrapy 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.