Correlation Between CVS Health and New Residential

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

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

Diversification Opportunities for CVS Health and New Residential

-0.27

Correlation Coefficient

CVS Health  New Residential

Very good diversification

The 3 months correlation between CVS and New is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and New Residential Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Residential Inve and CVS 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 CVS Health are associated (or correlated) with New Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Residential Inve has no effect on the direction of CVS Health i.e., CVS Health and New Residential go up and down completely randomly.

Pair Corralation between CVS Health and New Residential

Assuming the 90 days trading horizon CVS Health is expected to under-perform the New Residential. In addition to that, CVS Health is 2.73 times more volatile than New Residential Investment. It trades about -0.04 of its total potential returns per unit of risk. New Residential Investment is currently generating about 0.04 per unit of volatility. If you would invest  1,042  in New Residential Investment on September 15, 2024 and sell it today you would earn a total of  22.00  from holding New Residential Investment or generate 2.11% return on investment over 90 days.

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

CVS Health  vs.  New Residential Investment

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

New Residential Inve

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, New Residential is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CVS Health and New Residential

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

The idea behind CVS Health and New Residential Investment 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.