Correlation Between American Well and Avita Medical

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

By analyzing existing cross correlation between American Well Corp and Avita Medical, you can compare the effects of market volatilities on American Well and Avita Medical 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 American Well with a short position of Avita Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Well and Avita Medical.

Diversification Opportunities for American Well and Avita Medical

-0.5

Correlation Coefficient

American Well  Avita Medical

Very good diversification

The 3 months correlation between American and Avita is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding American Well Corp and Avita Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avita Medical and American Well 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 American Well Corp are associated (or correlated) with Avita Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avita Medical has no effect on the direction of American Well i.e., American Well and Avita Medical go up and down completely randomly.

Pair Corralation between American Well and Avita Medical

Given the investment horizon of 90 days American Well Corp is expected to under-perform the Avita Medical. In addition to that, American Well is 1.29 times more volatile than Avita Medical. It trades about -0.01 of its total potential returns per unit of risk. Avita Medical is currently generating about 0.14 per unit of volatility. If you would invest  1,026  in Avita Medical on September 14, 2024 and sell it today you would earn a total of  255.00  from holding Avita Medical or generate 24.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

American Well Corp  vs.  Avita Medical

American Well Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Well Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, American Well is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Avita Medical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avita Medical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating technical and fundamental indicators, Avita Medical disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Well and Avita Medical

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

The idea behind American Well Corp and Avita Medical 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.