Correlation Between Addus HomeCare and Align Technology

Can any of the company-specific risk be diversified away by investing in both Addus HomeCare and Align Technology 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 Addus HomeCare and Align Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Addus HomeCare and Align Technology, you can compare the effects of market volatilities on Addus HomeCare and Align Technology 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 Addus HomeCare with a short position of Align Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Addus HomeCare and Align Technology.

Diversification Opportunities for Addus HomeCare and Align Technology

0.71

Correlation Coefficient

Addus HomeCare  Align Technology

Poor diversification

The 3 months correlation between Addus and Align is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Addus HomeCare and Align Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Align Technology and Addus HomeCare 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 Addus HomeCare are associated (or correlated) with Align Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Align Technology has no effect on the direction of Addus HomeCare i.e., Addus HomeCare and Align Technology go up and down completely randomly.

Pair Corralation between Addus HomeCare and Align Technology

Given the investment horizon of 90 days Addus HomeCare is expected to generate 1.31 times less return on investment than Align Technology. But when comparing it to its historical volatility, Addus HomeCare is 1.5 times less risky than Align Technology. It trades about 0.03 of its potential returns per unit of risk. Align Technology is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  28,041  in Align Technology on January 26, 2024 and sell it today you would earn a total of  3,337  from holding Align Technology or generate 11.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Addus HomeCare  vs.  Align Technology

Addus HomeCare

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Addus HomeCare are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Addus HomeCare may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Align Technology

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Align Technology displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Addus HomeCare and Align Technology

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

The idea behind Addus HomeCare and Align Technology 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.