Correlation Between CVS HEALTH and Source Energy

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Can any of the company-specific risk be diversified away by investing in both CVS HEALTH and Source Energy 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 Source Energy 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 Source Energy Services, you can compare the effects of market volatilities on CVS HEALTH and Source Energy 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 Source Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS HEALTH and Source Energy.

Diversification Opportunities for CVS HEALTH and Source Energy

-0.24
  Correlation Coefficient

Very good diversification

The 3 months correlation between CVS and Source is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding CVS HEALTH CDR and Source Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Source Energy Services 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 Source Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Source Energy Services has no effect on the direction of CVS HEALTH i.e., CVS HEALTH and Source Energy go up and down completely randomly.

Pair Corralation between CVS HEALTH and Source Energy

Assuming the 90 days trading horizon CVS HEALTH CDR is expected to generate 0.6 times more return on investment than Source Energy. However, CVS HEALTH CDR is 1.68 times less risky than Source Energy. It trades about 0.54 of its potential returns per unit of risk. Source Energy Services is currently generating about 0.12 per unit of risk. If you would invest  1,100  in CVS HEALTH CDR on October 23, 2024 and sell it today you would earn a total of  229.00  from holding CVS HEALTH CDR or generate 20.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

CVS HEALTH CDR  vs.  Source Energy Services

 Performance 
       Timeline  
CVS HEALTH CDR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 latest stock price disarray, may contribute to short-term losses for the investors.
Source Energy Services 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Source Energy Services are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Source Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

CVS HEALTH and Source Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CVS HEALTH and Source Energy

The main advantage of trading using opposite CVS HEALTH and Source Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS HEALTH position performs unexpectedly, Source Energy 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 Source Energy will offset losses from the drop in Source Energy's long position.
The idea behind CVS HEALTH CDR and Source Energy Services 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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