Correlation Between European Residential and CVS HEALTH

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

By analyzing existing cross correlation between European Residential Real and CVS HEALTH CDR, you can compare the effects of market volatilities on European Residential and CVS HEALTH 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 European Residential with a short position of CVS HEALTH. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and CVS HEALTH.

Diversification Opportunities for European Residential and CVS HEALTH

0.0

Correlation Coefficient

European Residential  CVS HEALTH

Pay attention - limited upside

The 3 months correlation between European and CVS is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and CVS HEALTH CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS HEALTH CDR and European Residential 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 European Residential Real are associated (or correlated) with CVS HEALTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS HEALTH CDR has no effect on the direction of European Residential i.e., European Residential and CVS HEALTH go up and down completely randomly.

Pair Corralation between European Residential and CVS HEALTH

Assuming the 90 days trading horizon European Residential Real is expected to generate 0.99 times more return on investment than CVS HEALTH. However, European Residential Real is 1.01 times less risky than CVS HEALTH. It trades about 0.21 of its potential returns per unit of risk. CVS HEALTH CDR is currently generating about 0.02 per unit of risk. If you would invest  274.00  in European Residential Real on September 4, 2024 and sell it today you would earn a total of  100.00  from holding European Residential Real or generate 36.5% return on investment over 90 days.

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

European Residential Real  vs.  CVS HEALTH CDR

European Residential Real

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

CVS HEALTH CDR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CVS HEALTH CDR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, CVS HEALTH is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with European Residential and CVS HEALTH

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

The idea behind European Residential Real and CVS HEALTH CDR 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.