Correlation Between CVS Health and CECO ENVIRONMENTAL

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

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

Diversification Opportunities for CVS Health and CECO ENVIRONMENTAL

-0.16

Correlation Coefficient

CVS Health  CECO ENVIRONMENTAL

Good diversification

The 3 months correlation between CVS and CECO is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and CECO ENVIRONMENTAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CECO ENVIRONMENTAL 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 CECO ENVIRONMENTAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CECO ENVIRONMENTAL has no effect on the direction of CVS Health i.e., CVS Health and CECO ENVIRONMENTAL go up and down completely randomly.

Pair Corralation between CVS Health and CECO ENVIRONMENTAL

Assuming the 90 days trading horizon CVS Health is expected to under-perform the CECO ENVIRONMENTAL. In addition to that, CVS Health is 1.08 times more volatile than CECO ENVIRONMENTAL. It trades about -0.45 of its total potential returns per unit of risk. CECO ENVIRONMENTAL is currently generating about -0.07 per unit of volatility. If you would invest  2,938  in CECO ENVIRONMENTAL on September 23, 2024 and sell it today you would lose (130.00) from holding CECO ENVIRONMENTAL or give up 4.42% of portfolio value over 90 days.

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

CVS Health  vs.  CECO ENVIRONMENTAL

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 January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

CECO ENVIRONMENTAL

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CECO ENVIRONMENTAL are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CECO ENVIRONMENTAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and CECO ENVIRONMENTAL

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

The idea behind CVS Health and CECO ENVIRONMENTAL 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.