Correlation Between Community Health and HCA Holdings

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Can any of the company-specific risk be diversified away by investing in both Community Health and HCA Holdings 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 Community Health and HCA Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Community Health Systems and HCA Holdings, you can compare the effects of market volatilities on Community Health and HCA Holdings 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 Community Health with a short position of HCA Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community Health and HCA Holdings.

Diversification Opportunities for Community Health and HCA Holdings

-0.31
  Correlation Coefficient

Very good diversification

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

Pair Corralation between Community Health and HCA Holdings

Considering the 90-day investment horizon Community Health Systems is expected to generate 4.43 times more return on investment than HCA Holdings. However, Community Health is 4.43 times more volatile than HCA Holdings. It trades about 0.26 of its potential returns per unit of risk. HCA Holdings is currently generating about 0.3 per unit of risk. If you would invest  276.00  in Community Health Systems on December 29, 2023 and sell it today you would earn a total of  64.00  from holding Community Health Systems or generate 23.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Community Health Systems  vs.  HCA Holdings

 Performance 
       Timeline  
Community Health Systems 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Community Health Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal basic indicators, Community Health demonstrated solid returns over the last few months and may actually be approaching a breakup point.
HCA Holdings 

Risk-Adjusted Performance

21 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in HCA Holdings are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, HCA Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Community Health and HCA Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Community Health and HCA Holdings

The main advantage of trading using opposite Community Health and HCA Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Community Health position performs unexpectedly, HCA Holdings 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 HCA Holdings will offset losses from the drop in HCA Holdings' long position.
The idea behind Community Health Systems and HCA Holdings 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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