Correlation Between CVS Health and Sunstone Hotel

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

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

Diversification Opportunities for CVS Health and Sunstone Hotel

-0.7

Correlation Coefficient

CVS Health  Sunstone Hotel

Excellent diversification

The 3 months correlation between CVS and Sunstone is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Sunstone Hotel Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunstone Hotel Investors 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 Sunstone Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunstone Hotel Investors has no effect on the direction of CVS Health i.e., CVS Health and Sunstone Hotel go up and down completely randomly.

Pair Corralation between CVS Health and Sunstone Hotel

Assuming the 90 days trading horizon CVS Health is expected to under-perform the Sunstone Hotel. In addition to that, CVS Health is 1.46 times more volatile than Sunstone Hotel Investors. It trades about -0.04 of its total potential returns per unit of risk. Sunstone Hotel Investors is currently generating about 0.07 per unit of volatility. If you would invest  844.00  in Sunstone Hotel Investors on October 5, 2024 and sell it today you would earn a total of  286.00  from holding Sunstone Hotel Investors or generate 33.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.68%
Values	Daily Returns

CVS Health  vs.  Sunstone Hotel Investors

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 uncertain 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.

Sunstone Hotel Investors

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Sunstone Hotel Investors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Sunstone Hotel

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

The idea behind CVS Health and Sunstone Hotel Investors 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.

Check out your portfolio center.

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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.