Correlation Between Acadia Healthcare and Community Health

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

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

Diversification Opportunities for Acadia Healthcare and Community Health

0.79

Correlation Coefficient

Acadia Healthcare  Community Health

Poor diversification

The 3 months correlation between Acadia and Community is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Acadia Healthcare and Community Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Health Systems and Acadia 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 Acadia Healthcare are associated (or correlated) with Community Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Health Systems has no effect on the direction of Acadia Healthcare i.e., Acadia Healthcare and Community Health go up and down completely randomly.

Pair Corralation between Acadia Healthcare and Community Health

Given the investment horizon of 90 days Acadia Healthcare is expected to generate 0.97 times more return on investment than Community Health. However, Acadia Healthcare is 1.03 times less risky than Community Health. It trades about -0.08 of its potential returns per unit of risk. Community Health Systems is currently generating about -0.48 per unit of risk. If you would invest  4,233  in Acadia Healthcare on September 3, 2024 and sell it today you would lose (170.00) from holding Acadia Healthcare or give up 4.02% of portfolio value over 90 days.

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

Acadia Healthcare  vs.  Community Health Systems

Acadia Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Acadia Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Community Health Systems

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Acadia Healthcare and Community Health

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

The idea behind Acadia Healthcare and Community Health Systems 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.