Correlation Between Dupont De and Encompass Health

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

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

Diversification Opportunities for Dupont De and Encompass Health

0.77

Correlation Coefficient

Dupont De  Encompass Health

Poor diversification

The 3 months correlation between Dupont and Encompass is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dupont De Nemours 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 Dupont De 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 Dupont De Nemours 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 Dupont De i.e., Dupont De and Encompass Health go up and down completely randomly.

Pair Corralation between Dupont De and Encompass Health

Allowing for the 90-day total investment horizon Dupont De is expected to generate 2.34 times less return on investment than Encompass Health. In addition to that, Dupont De is 1.37 times more volatile than Encompass Health Corp. It trades about 0.03 of its total potential returns per unit of risk. Encompass Health Corp is currently generating about 0.09 per unit of volatility. If you would invest  6,373  in Encompass Health Corp on January 26, 2024 and sell it today you would earn a total of  1,907  from holding Encompass Health Corp or generate 29.92% return on investment over 90 days.

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

Dupont De Nemours  vs.  Encompass Health Corp

Dupont De Nemours

Risk-Adjusted Performance

13 of 100

Good

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

Encompass Health Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical indicators, Encompass Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dupont De and Encompass Health

The main advantage of trading using opposite Dupont De and Encompass Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dupont De 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 Dupont De Nemours 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.