Correlation Between North American and Avanos Medical

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

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

Diversification Opportunities for North American and Avanos Medical

0.63

Correlation Coefficient

North American  Avanos Medical

Poor diversification

The 3 months correlation between North and Avanos is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Avanos Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avanos Medical and North American 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 North American Construction are associated (or correlated) with Avanos Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avanos Medical has no effect on the direction of North American i.e., North American and Avanos Medical go up and down completely randomly.

Pair Corralation between North American and Avanos Medical

Assuming the 90 days horizon North American Construction is expected to under-perform the Avanos Medical. In addition to that, North American is 1.24 times more volatile than Avanos Medical. It trades about -0.13 of its total potential returns per unit of risk. Avanos Medical is currently generating about -0.1 per unit of volatility. If you would invest  1,510  in Avanos Medical on December 21, 2024 and sell it today you would lose (190.00) from holding Avanos Medical or give up 12.58% of portfolio value over 90 days.

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

North American Construction  vs.  Avanos Medical

North American Const

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Avanos Medical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avanos Medical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with North American and Avanos Medical

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

The idea behind North American Construction and Avanos 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.