Correlation Between Evolent Health and HealthEquity

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

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

Diversification Opportunities for Evolent Health and HealthEquity

-0.95

Correlation Coefficient

Evolent Health  HealthEquity

Pay attention - limited upside

The 3 months correlation between Evolent and HealthEquity is -0.95. Overlapping area represents the amount of risk that can be diversified away by holding Evolent Health and HealthEquity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HealthEquity and Evolent Health 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 Evolent Health are associated (or correlated) with HealthEquity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HealthEquity has no effect on the direction of Evolent Health i.e., Evolent Health and HealthEquity go up and down completely randomly.

Pair Corralation between Evolent Health and HealthEquity

Considering the 90-day investment horizon Evolent Health is expected to under-perform the HealthEquity. In addition to that, Evolent Health is 3.34 times more volatile than HealthEquity. It trades about -0.18 of its total potential returns per unit of risk. HealthEquity is currently generating about 0.24 per unit of volatility. If you would invest  7,469  in HealthEquity on September 10, 2024 and sell it today you would earn a total of  2,631  from holding HealthEquity or generate 35.23% return on investment over 90 days.

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

Evolent Health  vs.  HealthEquity

Evolent Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolent Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent 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.

HealthEquity

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HealthEquity are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, HealthEquity showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Evolent Health and HealthEquity

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

The idea behind Evolent Health and HealthEquity 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.