Correlation Between GMO Internet and CVS Health

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

By analyzing existing cross correlation between GMO Internet and CVS Health Corp, you can compare the effects of market volatilities on GMO Internet 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 GMO Internet with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMO Internet and CVS Health.

Diversification Opportunities for GMO Internet and CVS Health

-0.57

Correlation Coefficient

GMO Internet  CVS Health

Excellent diversification

The 3 months correlation between GMO and CVS is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and CVS Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health Corp and GMO Internet 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 GMO Internet 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 Corp has no effect on the direction of GMO Internet i.e., GMO Internet and CVS Health go up and down completely randomly.

Pair Corralation between GMO Internet and CVS Health

Assuming the 90 days horizon GMO Internet is expected to generate 0.55 times more return on investment than CVS Health. However, GMO Internet is 1.81 times less risky than CVS Health. It trades about -0.17 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.31 per unit of risk. If you would invest  1,710  in GMO Internet on October 10, 2024 and sell it today you would lose (80.00) from holding GMO Internet or give up 4.68% of portfolio value over 90 days.

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

GMO Internet  vs.  CVS Health Corp

GMO Internet

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, GMO Internet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with GMO Internet and CVS Health

The main advantage of trading using opposite GMO Internet and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMO Internet 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 GMO Internet and CVS Health Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.