Correlation Between Lifestance Health and Encompass Health

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

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

Diversification Opportunities for Lifestance Health and Encompass Health

0.71

Correlation Coefficient

Lifestance Health  Encompass Health

Poor diversification

The 3 months correlation between Lifestance and Encompass is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Lifestance Health Group and Encompass Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encompass Health Corp and Lifestance 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 Lifestance Health Group are associated (or correlated) with Encompass Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encompass Health Corp has no effect on the direction of Lifestance Health i.e., Lifestance Health and Encompass Health go up and down completely randomly.

Pair Corralation between Lifestance Health and Encompass Health

Given the investment horizon of 90 days Lifestance Health Group is expected to generate 1.5 times more return on investment than Encompass Health. However, Lifestance Health is 1.5 times more volatile than Encompass Health Corp. It trades about 0.12 of its potential returns per unit of risk. Encompass Health Corp is currently generating about 0.12 per unit of risk. If you would invest  649.00  in Lifestance Health Group on September 3, 2024 and sell it today you would earn a total of  103.00  from holding Lifestance Health Group or generate 15.87% return on investment over 90 days.

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

Lifestance Health Group  vs.  Encompass Health Corp

Lifestance Health

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lifestance Health Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Lifestance Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Encompass Health Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical indicators, Encompass Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lifestance Health and Encompass Health

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

The idea behind Lifestance Health Group and Encompass Health Corp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.