That kind of rules out canvas, it can only draw when its on screen.
Plus it can take up a lot of ram.
Does the player actually have to see the hole?
If so you could apply the colored outline fx to a pre rendered sprite. It has an alpha setting that should help when you get a little "jaggy".
If you don't need to see it, you could always go with distance(x1,y1,x2,y2).
Where x1,y1 are the center of the object, and x2,y2 are the other objects.