Correlation Between National HealthCare and Select Medical

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

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

Diversification Opportunities for National HealthCare and Select Medical

0.63

Correlation Coefficient

National HealthCare  Select Medical

Poor diversification

The 3 months correlation between National and Select is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding National HealthCare 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 National HealthCare 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 National HealthCare 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 National HealthCare i.e., National HealthCare and Select Medical go up and down completely randomly.

Pair Corralation between National HealthCare and Select Medical

Considering the 90-day investment horizon National HealthCare is expected to generate 3.78 times less return on investment than Select Medical. But when comparing it to its historical volatility, National HealthCare is 1.24 times less risky than Select Medical. It trades about 0.04 of its potential returns per unit of risk. Select Medical Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,424  in Select Medical Holdings on August 17, 2024 and sell it today you would earn a total of  300.00  from holding Select Medical Holdings or generate 8.76% return on investment over 90 days.

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

National HealthCare  vs.  Select Medical Holdings

National HealthCare

Risk-Adjusted Performance

0 of 100

Weak

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

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 National HealthCare and Select Medical

The main advantage of trading using opposite National HealthCare and Select Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National HealthCare 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 National HealthCare 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.