Can any of the company-specific risk be diversified away by investing in both Ensign and Ryman Healthcare 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 Ensign and Ryman Healthcare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Ensign Group and Ryman Healthcare Limited, you can compare the effects of market volatilities on Ensign and Ryman Healthcare 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 Ensign with a short position of Ryman Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ensign and Ryman Healthcare.
Diversification Opportunities for Ensign and Ryman Healthcare
The 3 months correlation between Ensign and Ryman is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding The Ensign Group and Ryman Healthcare Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ryman Healthcare and Ensign 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 The Ensign Group are associated (or correlated) with Ryman Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ryman Healthcare has no effect on the direction of Ensign i.e., Ensign and Ryman Healthcare go up and down completely randomly.
Pair Corralation between Ensign and Ryman Healthcare
Assuming the 90 days horizon Ensign is expected to generate 5.11 times less return on investment than Ryman Healthcare. But when comparing it to its historical volatility, The Ensign Group is 1.82 times less risky than Ryman Healthcare. It trades about 0.03 of its potential returns per unit of risk. Ryman Healthcare Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 287.00 in Ryman Healthcare Limited on June 23, 2023 and sell it today you would earn a total of 69.00 from holding Ryman Healthcare Limited or generate 24.04% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in The Ensign Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ensign is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
Over the last 90 days Ryman Healthcare Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ryman Healthcare is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
The main advantage of trading using opposite Ensign and Ryman Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ensign position performs unexpectedly, Ryman Healthcare 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 Ryman Healthcare will offset losses from the drop in Ryman Healthcare's long position.
The idea behind The Ensign Group and Ryman Healthcare Limited 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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