Correlation Between Enhabit and Option Care

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

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

Diversification Opportunities for Enhabit and Option Care

0.7

Correlation Coefficient

Enhabit  Option Care

Poor diversification

The 3 months correlation between Enhabit and Option is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Enhabit and Option Care Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Option Care Health and Enhabit 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 Enhabit are associated (or correlated) with Option Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Option Care Health has no effect on the direction of Enhabit i.e., Enhabit and Option Care go up and down completely randomly.

Pair Corralation between Enhabit and Option Care

Given the investment horizon of 90 days Enhabit is expected to generate 2.56 times more return on investment than Option Care. However, Enhabit is 2.56 times more volatile than Option Care Health. It trades about 0.18 of its potential returns per unit of risk. Option Care Health is currently generating about -0.18 per unit of risk. If you would invest  864.00  in Enhabit on March 13, 2024 and sell it today you would earn a total of  96.00  from holding Enhabit or generate 11.11% return on investment over 90 days.

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

Enhabit  vs.  Option Care Health

Enhabit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enhabit has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Option Care Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Option Care Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Enhabit and Option Care

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

The idea behind Enhabit and Option Care Health 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.