Correlation Between CDW Corp and Health Care

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

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

Diversification Opportunities for CDW Corp and Health Care

0.87

Correlation Coefficient

CDW Corp  Health Care

Very poor diversification

The 3 months correlation between CDW and Health is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding CDW Corp and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select and CDW Corp 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 CDW Corp are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Select has no effect on the direction of CDW Corp i.e., CDW Corp and Health Care go up and down completely randomly.

Pair Corralation between CDW Corp and Health Care

Considering the 90-day investment horizon CDW Corp is expected to generate 1.85 times more return on investment than Health Care. However, CDW Corp is 1.85 times more volatile than Health Care Select. It trades about 0.07 of its potential returns per unit of risk. Health Care Select is currently generating about -0.05 per unit of risk. If you would invest  17,825  in CDW Corp on October 12, 2024 and sell it today you would earn a total of  309.00  from holding CDW Corp or generate 1.73% return on investment over 90 days.

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

CDW Corp  vs.  Health Care Select

Pair Trading with CDW Corp and Health Care

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

The idea behind CDW Corp and Health Care Select 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.