Correlation Between Select Medical and Aveanna Healthcare

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

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

Diversification Opportunities for Select Medical and Aveanna Healthcare

0.68

Correlation Coefficient

Select Medical  Aveanna Healthcare

Poor diversification

The 3 months correlation between Select and Aveanna is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Select Medical Holdings and Aveanna Healthcare Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aveanna Healthcare and Select Medical 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 Select Medical Holdings 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 Select Medical i.e., Select Medical and Aveanna Healthcare go up and down completely randomly.

Pair Corralation between Select Medical and Aveanna Healthcare

Considering the 90-day investment horizon Select Medical Holdings is expected to generate 0.65 times more return on investment than Aveanna Healthcare. However, Select Medical Holdings is 1.54 times less risky than Aveanna Healthcare. It trades about 0.04 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  1,886  in Select Medical Holdings on September 13, 2024 and sell it today you would earn a total of  82.00  from holding Select Medical Holdings or generate 4.35% return on investment over 90 days.

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

Select Medical Holdings  vs.  Aveanna Healthcare Holdings

Select Medical Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Medical Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Select Medical is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

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 Select Medical and Aveanna Healthcare

The main advantage of trading using opposite Select Medical and Aveanna Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Medical 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 Select Medical Holdings 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.