Correlation Between EHEALTH and CVS Health

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

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

Diversification Opportunities for EHEALTH and CVS Health

0.22

Correlation Coefficient

EHEALTH  CVS Health

Modest diversification

The 3 months correlation between EHEALTH and CVS is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding EHEALTH and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and EHEALTH 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 EHEALTH 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 EHEALTH i.e., EHEALTH and CVS Health go up and down completely randomly.

Pair Corralation between EHEALTH and CVS Health

Assuming the 90 days trading horizon EHEALTH is expected to generate 1.33 times more return on investment than CVS Health. However, EHEALTH is 1.33 times more volatile than CVS Health. It trades about 0.2 of its potential returns per unit of risk. CVS Health is currently generating about 0.07 per unit of risk. If you would invest  360.00  in EHEALTH on August 31, 2024 and sell it today you would earn a total of  195.00  from holding EHEALTH or generate 54.17% return on investment over 90 days.

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

EHEALTH  vs.  CVS Health

EHEALTH

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EHEALTH are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, EHEALTH exhibited solid returns over the last few months and may actually be approaching a breakup point.

CVS Health

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with EHEALTH and CVS Health

The main advantage of trading using opposite EHEALTH and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EHEALTH 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 EHEALTH 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.

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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.