Correlation Between Life Healthcare and Aveng

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

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

Diversification Opportunities for Life Healthcare and Aveng

0.05

Correlation Coefficient

Life Healthcare  Aveng

Significant diversification

The 3 months correlation between Life and Aveng is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Life Healthcare and Aveng in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aveng and Life 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 Life Healthcare are associated (or correlated) with Aveng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aveng has no effect on the direction of Life Healthcare i.e., Life Healthcare and Aveng go up and down completely randomly.

Pair Corralation between Life Healthcare and Aveng

Assuming the 90 days trading horizon Life Healthcare is expected to under-perform the Aveng. But the stock apears to be less risky and, when comparing its historical volatility, Life Healthcare is 1.21 times less risky than Aveng. The stock trades about -0.05 of its potential returns per unit of risk. The Aveng is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  99,000  in Aveng on October 11, 2024 and sell it today you would earn a total of  28,000  from holding Aveng or generate 28.28% return on investment over 90 days.

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

Life Healthcare  vs.  Aveng

Life Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Life Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Aveng

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aveng are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Aveng exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Life Healthcare and Aveng

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

The idea behind Life Healthcare and Aveng 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.