Correlation Between Exchange Income and CVS HEALTH

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

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

Diversification Opportunities for Exchange Income and CVS HEALTH

-0.46

Correlation Coefficient

Exchange Income  CVS HEALTH

Very good diversification

The 3 months correlation between Exchange and CVS is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Exchange Income and CVS HEALTH CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS HEALTH CDR and Exchange Income 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 Exchange Income are associated (or correlated) with CVS HEALTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS HEALTH CDR has no effect on the direction of Exchange Income i.e., Exchange Income and CVS HEALTH go up and down completely randomly.

Pair Corralation between Exchange Income and CVS HEALTH

Assuming the 90 days trading horizon Exchange Income is expected to generate 0.43 times more return on investment than CVS HEALTH. However, Exchange Income is 2.33 times less risky than CVS HEALTH. It trades about 0.24 of its potential returns per unit of risk. CVS HEALTH CDR is currently generating about -0.07 per unit of risk. If you would invest  4,383  in Exchange Income on September 29, 2024 and sell it today you would earn a total of  1,512  from holding Exchange Income or generate 34.5% return on investment over 90 days.

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

Exchange Income  vs.  CVS HEALTH CDR

Exchange Income

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Exchange Income are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Exchange Income displayed solid returns over the last few months and may actually be approaching a breakup point.

CVS HEALTH CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Exchange Income and CVS HEALTH

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

The idea behind Exchange Income and CVS HEALTH CDR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.