Correlation Between Select Medical and DaVita HealthCare

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

By analyzing existing cross correlation between Select Medical Holdings and DaVita HealthCare Partners, you can compare the effects of market volatilities on Select Medical and DaVita HealthCare 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 Select Medical with a short position of DaVita HealthCare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Medical and DaVita HealthCare.

Diversification Opportunities for Select Medical and DaVita HealthCare

0.06

Correlation Coefficient

Select Medical  DaVita HealthCare

Significant diversification

The 3 months correlation between Select and DaVita is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Select Medical Holdings and DaVita HealthCare Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DaVita HealthCare and Select Medical 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 Select Medical Holdings are associated (or correlated) with DaVita HealthCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DaVita HealthCare has no effect on the direction of Select Medical i.e., Select Medical and DaVita HealthCare go up and down completely randomly.

Pair Corralation between Select Medical and DaVita HealthCare

Considering the 90-day investment horizon Select Medical Holdings is expected to under-perform the DaVita HealthCare. In addition to that, Select Medical is 1.37 times more volatile than DaVita HealthCare Partners. It trades about -0.05 of its total potential returns per unit of risk. DaVita HealthCare Partners is currently generating about -0.02 per unit of volatility. If you would invest  15,436  in DaVita HealthCare Partners on September 15, 2024 and sell it today you would lose (163.00) from holding DaVita HealthCare Partners or give up 1.06% of portfolio value over 90 days.

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

Select Medical Holdings  vs.  DaVita HealthCare Partners

Select Medical Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Select Medical Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Select Medical is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

DaVita HealthCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DaVita HealthCare Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Select Medical and DaVita HealthCare

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

The idea behind Select Medical Holdings and DaVita HealthCare Partners 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.