Correlation Between Universal Display and CVS Health

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

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

Diversification Opportunities for Universal Display and CVS Health

0.72

Correlation Coefficient

Universal Display  CVS Health

Poor diversification

The 3 months correlation between Universal and CVS is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Universal Display Corp 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 Universal Display 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 Universal Display Corp 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 Universal Display i.e., Universal Display and CVS Health go up and down completely randomly.

Pair Corralation between Universal Display and CVS Health

Assuming the 90 days trading horizon Universal Display Corp is expected to generate 1.31 times more return on investment than CVS Health. However, Universal Display is 1.31 times more volatile than CVS Health Corp. It trades about 0.03 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.05 per unit of risk. If you would invest  12,623  in Universal Display Corp on October 4, 2024 and sell it today you would earn a total of  2,080  from holding Universal Display Corp or generate 16.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	84.68%
Values	Daily Returns

Universal Display Corp  vs.  CVS Health Corp

Universal Display Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Display Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very 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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Universal Display and CVS Health

The main advantage of trading using opposite Universal Display and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Display 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 Universal Display Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.