Correlation Between Tenet Healthcare and Encompass Health

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

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

Diversification Opportunities for Tenet Healthcare and Encompass Health

-0.1

Correlation Coefficient

Tenet Healthcare  Encompass Health

Good diversification

The 3 months correlation between Tenet and Encompass is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Tenet Healthcare and Encompass Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encompass Health Corp and Tenet 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 Tenet Healthcare are associated (or correlated) with Encompass Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encompass Health Corp has no effect on the direction of Tenet Healthcare i.e., Tenet Healthcare and Encompass Health go up and down completely randomly.

Pair Corralation between Tenet Healthcare and Encompass Health

Considering the 90-day investment horizon Tenet Healthcare is expected to under-perform the Encompass Health. In addition to that, Tenet Healthcare is 2.29 times more volatile than Encompass Health Corp. It trades about -0.05 of its total potential returns per unit of risk. Encompass Health Corp is currently generating about 0.12 per unit of volatility. If you would invest  9,310  in Encompass Health Corp on September 2, 2024 and sell it today you would earn a total of  984.00  from holding Encompass Health Corp or generate 10.57% return on investment over 90 days.

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

Tenet Healthcare  vs.  Encompass Health Corp

Tenet Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tenet Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Encompass Health Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical indicators, Encompass Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tenet Healthcare and Encompass Health

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

The idea behind Tenet Healthcare and Encompass Health Corp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.