Correlation Between Encompass Health and Integra LifeSciences

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

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

Diversification Opportunities for Encompass Health and Integra LifeSciences

-0.83

Correlation Coefficient

Encompass Health  Integra LifeSciences

Pay attention - limited upside

The 3 months correlation between Encompass and Integra is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Encompass Health Corp and Integra LifeSciences Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Integra LifeSciences and Encompass 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 Encompass Health Corp are associated (or correlated) with Integra LifeSciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Integra LifeSciences has no effect on the direction of Encompass Health i.e., Encompass Health and Integra LifeSciences go up and down completely randomly.

Pair Corralation between Encompass Health and Integra LifeSciences

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 0.4 times more return on investment than Integra LifeSciences. However, Encompass Health Corp is 2.5 times less risky than Integra LifeSciences. It trades about 0.18 of its potential returns per unit of risk. Integra LifeSciences Holdings is currently generating about -0.05 per unit of risk. If you would invest  7,472  in Encompass Health Corp on March 3, 2024 and sell it today you would earn a total of  1,167  from holding Encompass Health Corp or generate 15.62% return on investment over 90 days.

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

Encompass Health Corp  vs.  Integra LifeSciences Holdings

Encompass Health Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, Encompass Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Integra LifeSciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Integra LifeSciences Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Encompass Health and Integra LifeSciences

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

The idea behind Encompass Health Corp and Integra LifeSciences 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.

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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.