Correlation Between CVS Health and Norwegian Cruise

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

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

Diversification Opportunities for CVS Health and Norwegian Cruise

-0.32

Correlation Coefficient

CVS Health  Norwegian Cruise

Very good diversification

The 3 months correlation between CVS and Norwegian is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Norwegian Cruise Line in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Cruise Line 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 Norwegian Cruise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Cruise Line has no effect on the direction of CVS Health i.e., CVS Health and Norwegian Cruise go up and down completely randomly.

Pair Corralation between CVS Health and Norwegian Cruise

Assuming the 90 days trading horizon CVS Health is expected to generate 1.38 times more return on investment than Norwegian Cruise. However, CVS Health is 1.38 times more volatile than Norwegian Cruise Line. It trades about 0.41 of its potential returns per unit of risk. Norwegian Cruise Line is currently generating about 0.25 per unit of risk. If you would invest  2,736  in CVS Health on October 22, 2024 and sell it today you would earn a total of  438.00  from holding CVS Health or generate 16.01% return on investment over 90 days.

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

CVS Health  vs.  Norwegian Cruise Line

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. Despite somewhat strong basic indicators, CVS Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Norwegian Cruise Line

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Cruise Line are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Norwegian Cruise sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Norwegian Cruise

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

The idea behind CVS Health and Norwegian Cruise Line 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.