Correlation Between Encore Wire and National Health

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

By analyzing existing cross correlation between Encore Wire and National Health Investors, you can compare the effects of market volatilities on Encore Wire and National 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 Encore Wire with a short position of National Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Encore Wire and National Health.

Diversification Opportunities for Encore Wire and National Health

0.53

Correlation Coefficient

Encore Wire  National Health

Very weak diversification

The 3 months correlation between Encore and National is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Encore Wire and National Health Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Health Investors and Encore Wire 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 Encore Wire are associated (or correlated) with National Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Health Investors has no effect on the direction of Encore Wire i.e., Encore Wire and National Health go up and down completely randomly.

Pair Corralation between Encore Wire and National Health

Given the investment horizon of 90 days Encore Wire is expected to generate 1.71 times more return on investment than National Health. However, Encore Wire is 1.71 times more volatile than National Health Investors. It trades about 0.09 of its potential returns per unit of risk. National Health Investors is currently generating about 0.04 per unit of risk. If you would invest  10,589  in Encore Wire on January 17, 2024 and sell it today you would earn a total of  18,534  from holding Encore Wire or generate 175.03% return on investment over 90 days.

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

Encore Wire  vs.  National Health Investors

Encore Wire

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Encore Wire exhibited solid returns over the last few months and may actually be approaching a breakup point.

National Health Investors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Health Investors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, National Health may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Encore Wire and National Health

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

The idea behind Encore Wire and National Health Investors 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.