Correlation Between Regional Health and Avalon Holdings

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

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

Diversification Opportunities for Regional Health and Avalon Holdings

-0.53

Correlation Coefficient

Regional Health  Avalon Holdings

Excellent diversification

The 3 months correlation between Regional and Avalon is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Regional Health Properties and Avalon Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalon Holdings and Regional 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 Regional Health Properties are associated (or correlated) with Avalon Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalon Holdings has no effect on the direction of Regional Health i.e., Regional Health and Avalon Holdings go up and down completely randomly.

Pair Corralation between Regional Health and Avalon Holdings

Considering the 90-day investment horizon Regional Health Properties is expected to generate 7.16 times more return on investment than Avalon Holdings. However, Regional Health is 7.16 times more volatile than Avalon Holdings. It trades about 0.13 of its potential returns per unit of risk. Avalon Holdings is currently generating about 0.0 per unit of risk. If you would invest  150.00  in Regional Health Properties on December 19, 2024 and sell it today you would earn a total of  82.00  from holding Regional Health Properties or generate 54.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	51.67%
Values	Daily Returns

Regional Health Properties  vs.  Avalon Holdings

Regional Health Prop

Risk-Adjusted Performance

OK

Over the last 90 days Regional Health Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak technical indicators, Regional Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Avalon Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avalon Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Avalon Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Regional Health and Avalon Holdings

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

The idea behind Regional Health Properties and Avalon 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.