Correlation Between CVS Health and Zegona Communications

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

Diversification Opportunities for CVS Health and Zegona Communications

0.6

Correlation Coefficient

CVS Health  Zegona Communications

Poor diversification

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

Pair Corralation between CVS Health and Zegona Communications

Assuming the 90 days trading horizon CVS Health Corp is expected to generate 1.17 times more return on investment than Zegona Communications. However, CVS Health is 1.17 times more volatile than Zegona Communications Plc. It trades about 0.04 of its potential returns per unit of risk. Zegona Communications Plc is currently generating about 0.02 per unit of risk. If you would invest  5,708  in CVS Health Corp on August 31, 2024 and sell it today you would earn a total of  278.00  from holding CVS Health Corp or generate 4.87% return on investment over 90 days.

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

CVS Health Corp  vs.  Zegona Communications Plc

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 unsteady basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Zegona Communications Plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zegona Communications Plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Zegona Communications is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CVS Health and Zegona Communications

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

The idea behind CVS Health Corp and Zegona Communications 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.