Correlation Between Select Medical and Pennant

Can any of the company-specific risk be diversified away by investing in both Select Medical and Pennant 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 Pennant 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 Pennant Group, you can compare the effects of market volatilities on Select Medical and Pennant 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 Pennant. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Medical and Pennant.

Diversification Opportunities for Select Medical and Pennant

-0.35

Correlation Coefficient

Select Medical  Pennant

Very good diversification

The 3 months correlation between Select and Pennant is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Select Medical Holdings and Pennant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pennant Group 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 Pennant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pennant Group has no effect on the direction of Select Medical i.e., Select Medical and Pennant go up and down completely randomly.

Pair Corralation between Select Medical and Pennant

Considering the 90-day investment horizon Select Medical Holdings is expected to generate 0.91 times more return on investment than Pennant. However, Select Medical Holdings is 1.1 times less risky than Pennant. It trades about 0.08 of its potential returns per unit of risk. Pennant Group is currently generating about -0.03 per unit of risk. If you would invest  1,931  in Select Medical Holdings on August 30, 2024 and sell it today you would earn a total of  203.00  from holding Select Medical Holdings or generate 10.51% return on investment over 90 days.

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

Select Medical Holdings  vs.  Pennant Group

Select Medical Holdings

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Medical Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Select Medical may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pennant Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Select Medical and Pennant

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

The idea behind Select Medical Holdings and Pennant Group 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.