Correlation Between Aveanna Healthcare and Encompass Health

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

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

Diversification Opportunities for Aveanna Healthcare and Encompass Health

0.41

Correlation Coefficient

Aveanna Healthcare  Encompass Health

Very weak diversification

The 3 months correlation between Aveanna and Encompass is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Aveanna Healthcare Holdings and Encompass Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encompass Health Corp and Aveanna Healthcare 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 Aveanna Healthcare Holdings are associated (or correlated) with Encompass Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encompass Health Corp has no effect on the direction of Aveanna Healthcare i.e., Aveanna Healthcare and Encompass Health go up and down completely randomly.

Pair Corralation between Aveanna Healthcare and Encompass Health

Given the investment horizon of 90 days Aveanna Healthcare Holdings is expected to under-perform the Encompass Health. In addition to that, Aveanna Healthcare is 2.51 times more volatile than Encompass Health Corp. It trades about -0.24 of its total potential returns per unit of risk. Encompass Health Corp is currently generating about -0.09 per unit of volatility. If you would invest  10,261  in Encompass Health Corp on September 13, 2024 and sell it today you would lose (192.00) from holding Encompass Health Corp or give up 1.87% of portfolio value over 90 days.

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

Aveanna Healthcare Holdings  vs.  Encompass Health Corp

Aveanna Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aveanna Healthcare Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Aveanna Healthcare is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Encompass Health Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical indicators, Encompass Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Aveanna Healthcare and Encompass Health

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

The idea behind Aveanna Healthcare Holdings and Encompass Health Corp 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.