Correlation Between Medical Facilities and Premium Income

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

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

Diversification Opportunities for Medical Facilities and Premium Income

-0.04

Correlation Coefficient

Medical Facilities  Premium Income

Good diversification

The 3 months correlation between Medical and Premium is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Medical Facilities and Premium Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Income and Medical Facilities 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 Medical Facilities are associated (or correlated) with Premium Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Income has no effect on the direction of Medical Facilities i.e., Medical Facilities and Premium Income go up and down completely randomly.

Pair Corralation between Medical Facilities and Premium Income

Assuming the 90 days horizon Medical Facilities is expected to generate 2.19 times more return on investment than Premium Income. However, Medical Facilities is 2.19 times more volatile than Premium Income. It trades about 0.13 of its potential returns per unit of risk. Premium Income is currently generating about -0.11 per unit of risk. If you would invest  1,461  in Medical Facilities on September 12, 2024 and sell it today you would earn a total of  92.00  from holding Medical Facilities or generate 6.3% return on investment over 90 days.

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

Medical Facilities  vs.  Premium Income

Medical Facilities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Medical Facilities are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Medical Facilities displayed solid returns over the last few months and may actually be approaching a breakup point.

Premium Income

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Premium Income are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Premium Income may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Medical Facilities and Premium Income

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

The idea behind Medical Facilities and Premium Income 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.