Correlation Between Peak Resources and CVS Health

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

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

Diversification Opportunities for Peak Resources and CVS Health

-0.18

Correlation Coefficient

Peak Resources  CVS Health

Good diversification

The 3 months correlation between Peak and CVS is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Peak Resources Limited and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Peak Resources 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 Peak Resources Limited 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 has no effect on the direction of Peak Resources i.e., Peak Resources and CVS Health go up and down completely randomly.

Pair Corralation between Peak Resources and CVS Health

Assuming the 90 days horizon Peak Resources is expected to generate 2.83 times less return on investment than CVS Health. In addition to that, Peak Resources is 2.78 times more volatile than CVS Health. It trades about 0.03 of its total potential returns per unit of risk. CVS Health is currently generating about 0.25 per unit of volatility. If you would invest  4,188  in CVS Health on December 27, 2024 and sell it today you would earn a total of  2,039  from holding CVS Health or generate 48.69% return on investment over 90 days.

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

Peak Resources Limited  vs.  CVS Health

Peak Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Peak Resources Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Peak Resources reported solid returns over the last few months and may actually be approaching a breakup point.

CVS Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, CVS Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Peak Resources and CVS Health

The main advantage of trading using opposite Peak Resources and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Peak Resources 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 Peak Resources Limited and CVS Health 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.