Can any of the company-specific risk be diversified away by investing in both Healthcare Services and BrightView 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 Healthcare Services and BrightView Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Healthcare Services Group and BrightView Holdings, you can compare the effects of market volatilities on Healthcare Services and BrightView 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 Healthcare Services with a short position of BrightView Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Healthcare Services and BrightView Holdings.
Diversification Opportunities for Healthcare Services and BrightView Holdings
The 3 months correlation between Healthcare and BrightView is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Services Group and BrightView Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BrightView Holdings and Healthcare Services 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 Healthcare Services Group are associated (or correlated) with BrightView Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BrightView Holdings has no effect on the direction of Healthcare Services i.e., Healthcare Services and BrightView Holdings go up and down completely randomly.
Pair Corralation between Healthcare Services and BrightView Holdings
Given the investment horizon of 90 days Healthcare Services Group is expected to generate 0.81 times more return on investment than BrightView Holdings. However, Healthcare Services Group is 1.24 times less risky than BrightView Holdings. It trades about -0.26 of its potential returns per unit of risk. BrightView Holdings is currently generating about -0.29 per unit of risk. If you would invest 1,171 in Healthcare Services Group on June 28, 2023 and sell it today you would lose (99.00) from holding Healthcare Services Group or give up 8.45% of portfolio value over 90 days.
Over the last 90 days Healthcare Services Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in October 2023. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in BrightView Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, BrightView Holdings may actually be approaching a critical reversion point that can send shares even higher in October 2023.
Healthcare Services and BrightView Holdings Volatility Contrast
Predicted Return Density
Pair Trading with Healthcare Services and BrightView Holdings
The main advantage of trading using opposite Healthcare Services and BrightView Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Healthcare Services position performs unexpectedly, BrightView 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 BrightView Holdings will offset losses from the drop in BrightView Holdings' long position.
The idea behind Healthcare Services Group and BrightView 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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