Correlation Between M3 and Signify Health

Can any of the company-specific risk be diversified away by investing in both M3 and Signify 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 M3 and Signify Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between M3 Inc and Signify Health, you can compare the effects of market volatilities on M3 and Signify 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 M3 with a short position of Signify Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of M3 and Signify Health.

Diversification Opportunities for M3 and Signify Health

-0.31

Correlation Coefficient

M3  Signify Health

Very good diversification

The 3 months correlation between M3 and Signify is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding M3 Inc and Signify Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Signify Health and M3 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 M3 Inc are associated (or correlated) with Signify Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Signify Health has no effect on the direction of M3 i.e., M3 and Signify Health go up and down completely randomly.

Pair Corralation between M3 and Signify Health

Assuming the 90 days horizon M3 Inc is expected to under-perform the Signify Health. In addition to that, M3 is 3.08 times more volatile than Signify Health. It trades about -0.09 of its total potential returns per unit of risk. Signify Health is currently generating about 0.13 per unit of volatility. If you would invest  2,848  in Signify Health on September 26, 2024 and sell it today you would earn a total of  201.00  from holding Signify Health or generate 7.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	17.0%
Values	Daily Returns

M3 Inc  vs.  Signify Health

M3 Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days M3 Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, M3 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Signify Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Signify Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Signify Health is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with M3 and Signify Health

The main advantage of trading using opposite M3 and Signify Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M3 position performs unexpectedly, Signify 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 Signify Health will offset losses from the drop in Signify Health's long position.

The idea behind M3 Inc and Signify Health 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.