Correlation Between Solstad Offshore and CVS Health

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

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

Diversification Opportunities for Solstad Offshore and CVS Health

-0.76

Correlation Coefficient

Solstad Offshore  CVS Health

Pay attention - limited upside

The 3 months correlation between Solstad and CVS is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Solstad Offshore ASA 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 Solstad Offshore 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 Solstad Offshore ASA 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 Solstad Offshore i.e., Solstad Offshore and CVS Health go up and down completely randomly.

Pair Corralation between Solstad Offshore and CVS Health

Assuming the 90 days trading horizon Solstad Offshore ASA is expected to under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, Solstad Offshore ASA is 1.57 times less risky than CVS Health. The stock trades about -0.07 of its potential returns per unit of risk. The CVS Health Corp is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  4,348  in CVS Health Corp on December 30, 2024 and sell it today you would earn a total of  2,393  from holding CVS Health Corp or generate 55.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.92%
Values	Daily Returns

Solstad Offshore ASA  vs.  CVS Health Corp

Solstad Offshore ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solstad Offshore ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

CVS Health Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, CVS Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solstad Offshore and CVS Health

The main advantage of trading using opposite Solstad Offshore and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solstad Offshore 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 Solstad Offshore ASA 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..