Correlation Between CVS Health and ALGOMA STEEL

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

By analyzing existing cross correlation between CVS Health and ALGOMA STEEL GROUP, you can compare the effects of market volatilities on CVS Health and ALGOMA STEEL 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 ALGOMA STEEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and ALGOMA STEEL.

Diversification Opportunities for CVS Health and ALGOMA STEEL

-0.31

Correlation Coefficient

CVS Health  ALGOMA STEEL

Very good diversification

The 3 months correlation between CVS and ALGOMA is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and ALGOMA STEEL GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALGOMA STEEL GROUP 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 are associated (or correlated) with ALGOMA STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALGOMA STEEL GROUP has no effect on the direction of CVS Health i.e., CVS Health and ALGOMA STEEL go up and down completely randomly.

Pair Corralation between CVS Health and ALGOMA STEEL

Assuming the 90 days trading horizon CVS Health is expected to generate 1.4 times more return on investment than ALGOMA STEEL. However, CVS Health is 1.4 times more volatile than ALGOMA STEEL GROUP. It trades about 0.06 of its potential returns per unit of risk. ALGOMA STEEL GROUP is currently generating about -0.28 per unit of risk. If you would invest  5,581  in CVS Health on November 29, 2024 and sell it today you would earn a total of  468.00  from holding CVS Health or generate 8.39% return on investment over 90 days.

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

CVS Health  vs.  ALGOMA STEEL GROUP

CVS Health

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in March 2025.

ALGOMA STEEL GROUP

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALGOMA STEEL GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with CVS Health and ALGOMA STEEL

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

The idea behind CVS Health and ALGOMA STEEL GROUP 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.