Correlation Between London Security and CVS Health

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

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

Diversification Opportunities for London Security and CVS Health

0.43

Correlation Coefficient

London Security  CVS Health

Very weak diversification

The 3 months correlation between London and CVS is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and CVS Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health Corp and London Security 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 London Security Plc 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 Corp has no effect on the direction of London Security i.e., London Security and CVS Health go up and down completely randomly.

Pair Corralation between London Security and CVS Health

Assuming the 90 days trading horizon London Security Plc is expected to generate 0.49 times more return on investment than CVS Health. However, London Security Plc is 2.06 times less risky than CVS Health. It trades about -0.09 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.16 per unit of risk. If you would invest  371,671  in London Security Plc on September 27, 2024 and sell it today you would lose (31,671) from holding London Security Plc or give up 8.52% of portfolio value over 90 days.

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

London Security Plc  vs.  CVS Health Corp

London Security Plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with London Security and CVS Health

The main advantage of trading using opposite London Security and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Security 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 London Security Plc and CVS Health Corp 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.