Correlation Between CVS HEALTH and NorthWest Healthcare

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

By analyzing existing cross correlation between CVS HEALTH CDR and NorthWest Healthcare Properties, you can compare the effects of market volatilities on CVS HEALTH and NorthWest Healthcare 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 NorthWest Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS HEALTH and NorthWest Healthcare.

Diversification Opportunities for CVS HEALTH and NorthWest Healthcare

0.45

Correlation Coefficient

CVS HEALTH  NorthWest Healthcare

Very weak diversification

The 3 months correlation between CVS and NorthWest is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding CVS HEALTH CDR and NorthWest Healthcare Propertie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWest Healthcare 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 CDR are associated (or correlated) with NorthWest Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorthWest Healthcare has no effect on the direction of CVS HEALTH i.e., CVS HEALTH and NorthWest Healthcare go up and down completely randomly.

Pair Corralation between CVS HEALTH and NorthWest Healthcare

Assuming the 90 days trading horizon CVS HEALTH CDR is expected to generate 1.86 times more return on investment than NorthWest Healthcare. However, CVS HEALTH is 1.86 times more volatile than NorthWest Healthcare Properties. It trades about -0.01 of its potential returns per unit of risk. NorthWest Healthcare Properties is currently generating about -0.11 per unit of risk. If you would invest  1,421  in CVS HEALTH CDR on September 12, 2024 and sell it today you would lose (47.00) from holding CVS HEALTH CDR or give up 3.31% of portfolio value over 90 days.

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

CVS HEALTH CDR  vs.  NorthWest Healthcare Propertie

CVS HEALTH CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, CVS HEALTH is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

NorthWest Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NorthWest Healthcare Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with CVS HEALTH and NorthWest Healthcare

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

The idea behind CVS HEALTH CDR and NorthWest Healthcare Properties 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.