Correlation Between CVS Health and Optima Health

Can any of the company-specific risk be diversified away by investing in both CVS Health and Optima 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 CVS Health and Optima Health 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 Optima Health plc, you can compare the effects of market volatilities on CVS Health and Optima 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 CVS Health with a short position of Optima Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Optima Health.

Diversification Opportunities for CVS Health and Optima Health

0.91

Correlation Coefficient

CVS Health  Optima Health

Almost no diversification

The 3 months correlation between CVS and Optima is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Optima Health plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optima Health plc 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 Optima Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optima Health plc has no effect on the direction of CVS Health i.e., CVS Health and Optima Health go up and down completely randomly.

Pair Corralation between CVS Health and Optima Health

Assuming the 90 days trading horizon CVS Health Corp is expected to generate 1.55 times more return on investment than Optima Health. However, CVS Health is 1.55 times more volatile than Optima Health plc. It trades about 0.26 of its potential returns per unit of risk. Optima Health plc is currently generating about 0.17 per unit of risk. 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 Together
Strength	Very Strong
Accuracy	96.92%
Values	Daily Returns

CVS Health Corp  vs.  Optima Health plc

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.

Optima Health plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optima Health plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Optima Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Optima Health

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

The idea behind CVS Health Corp and Optima Health plc 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 Anywhere module to track or share privately all of your investments from the convenience of any device.