Correlation Between Pacific Health and Western Capital

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

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

Diversification Opportunities for Pacific Health and Western Capital

-0.07

Correlation Coefficient

Pacific Health  Western Capital

Good diversification

The 3 months correlation between Pacific and Western is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Health Care and Western Capital Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Capital Resources and Pacific 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 Pacific Health Care are associated (or correlated) with Western Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Capital Resources has no effect on the direction of Pacific Health i.e., Pacific Health and Western Capital go up and down completely randomly.

Pair Corralation between Pacific Health and Western Capital

Given the investment horizon of 90 days Pacific Health is expected to generate 5.28 times less return on investment than Western Capital. But when comparing it to its historical volatility, Pacific Health Care is 1.26 times less risky than Western Capital. It trades about 0.02 of its potential returns per unit of risk. Western Capital Resources is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  766.00  in Western Capital Resources on September 17, 2024 and sell it today you would earn a total of  131.00  from holding Western Capital Resources or generate 17.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Pacific Health Care  vs.  Western Capital Resources

Pacific Health Care

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Health Care are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Pacific Health is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Western Capital Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Capital Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Western Capital unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pacific Health and Western Capital

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

The idea behind Pacific Health Care and Western Capital Resources 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.