Correlation Between Healthcare Services and Select Medical

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

Diversification Opportunities for Healthcare Services and Select Medical

0.78

Correlation Coefficient

Healthcare Services  Select Medical

Poor diversification

The 3 months correlation between Healthcare and Select is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Services Group and Select Medical Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Medical Holdings 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 Select Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Medical Holdings has no effect on the direction of Healthcare Services i.e., Healthcare Services and Select Medical go up and down completely randomly.

Pair Corralation between Healthcare Services and Select Medical

Given the investment horizon of 90 days Healthcare Services Group is expected to generate 0.54 times more return on investment than Select Medical. However, Healthcare Services Group is 1.87 times less risky than Select Medical. It trades about 0.29 of its potential returns per unit of risk. Select Medical Holdings is currently generating about 0.13 per unit of risk. If you would invest  1,074  in Healthcare Services Group on August 17, 2024 and sell it today you would earn a total of  119.00  from holding Healthcare Services Group or generate 11.08% return on investment over 90 days.

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

Healthcare Services Group  vs.  Select Medical Holdings

Healthcare Services

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Healthcare Services Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Healthcare Services may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Select Medical Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Select Medical Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Select Medical may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Healthcare Services and Select Medical

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

The idea behind Healthcare Services Group and Select Medical Holdings 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.