Correlation Between NorthWest Healthcare and CVS HEALTH

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

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

Diversification Opportunities for NorthWest Healthcare and CVS HEALTH

0.47

Correlation Coefficient

NorthWest Healthcare  CVS HEALTH

Very weak diversification

The 3 months correlation between NorthWest and CVS is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding NorthWest Healthcare Propertie 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 NorthWest Healthcare 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 NorthWest Healthcare Properties 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 NorthWest Healthcare i.e., NorthWest Healthcare and CVS HEALTH go up and down completely randomly.

Pair Corralation between NorthWest Healthcare and CVS HEALTH

Assuming the 90 days trading horizon NorthWest Healthcare Properties is expected to under-perform the CVS HEALTH. But the stock apears to be less risky and, when comparing its historical volatility, NorthWest Healthcare Properties is 2.06 times less risky than CVS HEALTH. The stock trades about -0.16 of its potential returns per unit of risk. The CVS HEALTH CDR is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,434  in CVS HEALTH CDR on September 13, 2024 and sell it today you would lose (143.00) from holding CVS HEALTH CDR or give up 9.97% of portfolio value over 90 days.

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

NorthWest Healthcare Propertie  vs.  CVS HEALTH CDR

NorthWest Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NorthWest Healthcare Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

CVS HEALTH CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with NorthWest Healthcare and CVS HEALTH

The main advantage of trading using opposite NorthWest Healthcare and CVS HEALTH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NorthWest Healthcare 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 NorthWest Healthcare Properties 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.