Correlation Between CVS Health and Omega Healthcare

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

By analyzing existing cross correlation between CVS Health Corp and Omega Healthcare Investors, you can compare the effects of market volatilities on CVS Health and Omega Healthcare 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 Omega Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Omega Healthcare.

Diversification Opportunities for CVS Health and Omega Healthcare

-0.43

Correlation Coefficient

CVS Health  Omega Healthcare

Very good diversification

The 3 months correlation between CVS and Omega is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Omega Healthcare Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omega Healthcare Inv 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 Corp are associated (or correlated) with Omega Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omega Healthcare Inv has no effect on the direction of CVS Health i.e., CVS Health and Omega Healthcare go up and down completely randomly.

Pair Corralation between CVS Health and Omega Healthcare

Assuming the 90 days trading horizon CVS Health Corp is expected to generate 2.21 times more return on investment than Omega Healthcare. However, CVS Health is 2.21 times more volatile than Omega Healthcare Investors. It trades about 0.04 of its potential returns per unit of risk. Omega Healthcare Investors is currently generating about 0.05 per unit of risk. If you would invest  5,708  in CVS Health Corp on September 1, 2024 and sell it today you would earn a total of  264.00  from holding CVS Health Corp or generate 4.63% return on investment over 90 days.

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

CVS Health Corp  vs.  Omega Healthcare Investors

CVS Health Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Omega Healthcare Inv

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Omega Healthcare Investors are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Omega Healthcare is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CVS Health and Omega Healthcare

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

The idea behind CVS Health Corp and Omega Healthcare Investors 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.