Correlation Between Encompass Health and Aveanna Healthcare

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

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

Diversification Opportunities for Encompass Health and Aveanna Healthcare

0.41

Correlation Coefficient

Encompass Health  Aveanna Healthcare

Very weak diversification

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

Pair Corralation between Encompass Health and Aveanna Healthcare

Considering the 90-day investment horizon Encompass Health Corp is expected to generate 0.38 times more return on investment than Aveanna Healthcare. However, Encompass Health Corp is 2.61 times less risky than Aveanna Healthcare. It trades about 0.11 of its potential returns per unit of risk. Aveanna Healthcare Holdings is currently generating about 0.0 per unit of risk. If you would invest  9,309  in Encompass Health Corp on September 13, 2024 and sell it today you would earn a total of  849.00  from holding Encompass Health Corp or generate 9.12% return on investment over 90 days.

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

Encompass Health Corp  vs.  Aveanna Healthcare Holdings

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.

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.

Pair Trading with Encompass Health and Aveanna Healthcare

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

The idea behind Encompass Health Corp and Aveanna Healthcare 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.

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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.