Correlation Between Acadia Healthcare and Healthcare Services

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

By analyzing existing cross correlation between Acadia Healthcare and Healthcare Services Group, you can compare the effects of market volatilities on Acadia Healthcare and Healthcare Services 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 Healthcare Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Acadia Healthcare and Healthcare Services.

Diversification Opportunities for Acadia Healthcare and Healthcare Services

-0.37

Correlation Coefficient

Acadia Healthcare  Healthcare Services

Very good diversification

The 3 months correlation between Acadia and Healthcare is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Acadia Healthcare and Healthcare Services Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Healthcare Services 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 Healthcare Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Healthcare Services has no effect on the direction of Acadia Healthcare i.e., Acadia Healthcare and Healthcare Services go up and down completely randomly.

Pair Corralation between Acadia Healthcare and Healthcare Services

Given the investment horizon of 90 days Acadia Healthcare is expected to under-perform the Healthcare Services. In addition to that, Acadia Healthcare is 1.78 times more volatile than Healthcare Services Group. It trades about -0.25 of its total potential returns per unit of risk. Healthcare Services Group is currently generating about 0.11 per unit of volatility. If you would invest  1,080  in Healthcare Services Group on September 3, 2024 and sell it today you would earn a total of  154.00  from holding Healthcare Services Group or generate 14.26% return on investment over 90 days.

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

Acadia Healthcare  vs.  Healthcare Services Group

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.

Healthcare Services

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Healthcare Services Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Healthcare Services reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Acadia Healthcare and Healthcare Services

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

The idea behind Acadia Healthcare and Healthcare Services Group 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 Transaction History module to view history of all your transactions and understand their impact on performance.