Correlation Between CVS Health and XLMedia PLC

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

Diversification Opportunities for CVS Health and XLMedia PLC

-0.6

Correlation Coefficient

CVS Health  XLMedia PLC

Excellent diversification

The 3 months correlation between CVS and XLMedia is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and XLMedia PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XLMedia 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 XLMedia PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XLMedia PLC has no effect on the direction of CVS Health i.e., CVS Health and XLMedia PLC go up and down completely randomly.

Pair Corralation between CVS Health and XLMedia PLC

Assuming the 90 days trading horizon CVS Health Corp is expected to under-perform the XLMedia PLC. But the stock apears to be less risky and, when comparing its historical volatility, CVS Health Corp is 1.39 times less risky than XLMedia PLC. The stock trades about 0.0 of its potential returns per unit of risk. The XLMedia PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  975.00  in XLMedia PLC on September 12, 2024 and sell it today you would earn a total of  225.00  from holding XLMedia PLC or generate 23.08% return on investment over 90 days.

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

CVS Health Corp  vs.  XLMedia PLC

CVS Health Corp

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, CVS Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

XLMedia PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in XLMedia PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, XLMedia PLC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and XLMedia PLC

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

The idea behind CVS Health Corp and XLMedia 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.