Correlation Between CVS Health and SBM OFFSHORE

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

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

Diversification Opportunities for CVS Health and SBM OFFSHORE

0.3

Correlation Coefficient

CVS Health  SBM OFFSHORE

Weak diversification

The 3 months correlation between CVS and SBM is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and SBM OFFSHORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM OFFSHORE 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 SBM OFFSHORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM OFFSHORE has no effect on the direction of CVS Health i.e., CVS Health and SBM OFFSHORE go up and down completely randomly.

Pair Corralation between CVS Health and SBM OFFSHORE

Assuming the 90 days trading horizon CVS Health is expected to generate 2.49 times more return on investment than SBM OFFSHORE. However, CVS Health is 2.49 times more volatile than SBM OFFSHORE. It trades about 0.16 of its potential returns per unit of risk. SBM OFFSHORE is currently generating about 0.21 per unit of risk. If you would invest  4,436  in CVS Health on October 15, 2024 and sell it today you would earn a total of  236.00  from holding CVS Health or generate 5.32% return on investment over 90 days.

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

CVS Health  vs.  SBM OFFSHORE

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

SBM OFFSHORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBM OFFSHORE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, SBM OFFSHORE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CVS Health and SBM OFFSHORE

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

The idea behind CVS Health and SBM OFFSHORE 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 CEOs Directory module to screen CEOs from public companies around the world.