Correlation Between Life Healthcare and Netcare

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

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

Diversification Opportunities for Life Healthcare and Netcare

0.91

Correlation Coefficient

Life Healthcare  Netcare

Almost no diversification

The 3 months correlation between Life and Netcare is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Life Healthcare and Netcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netcare and Life 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 Life Healthcare are associated (or correlated) with Netcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netcare has no effect on the direction of Life Healthcare i.e., Life Healthcare and Netcare go up and down completely randomly.

Pair Corralation between Life Healthcare and Netcare

Assuming the 90 days trading horizon Life Healthcare is expected to generate 1.37 times more return on investment than Netcare. However, Life Healthcare is 1.37 times more volatile than Netcare. It trades about -0.02 of its potential returns per unit of risk. Netcare is currently generating about -0.1 per unit of risk. If you would invest  170,100  in Life Healthcare on September 4, 2024 and sell it today you would lose (2,800) from holding Life Healthcare or give up 1.65% of portfolio value over 90 days.

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

Life Healthcare  vs.  Netcare

Life Healthcare

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Life Healthcare are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Life Healthcare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Netcare

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Netcare are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Netcare may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Life Healthcare and Netcare

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

The idea behind Life Healthcare and Netcare 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.