Correlation Between Optima Health and CVS Health

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

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

Diversification Opportunities for Optima Health and CVS Health

0.91

Correlation Coefficient

Optima Health  CVS Health

Almost no diversification

The 3 months correlation between Optima and CVS is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Optima Health plc 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 Optima Health 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 Optima Health plc 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 Optima Health i.e., Optima Health and CVS Health go up and down completely randomly.

Pair Corralation between Optima Health and CVS Health

Assuming the 90 days trading horizon Optima Health is expected to generate 2.43 times less return on investment than CVS Health. But when comparing it to its historical volatility, Optima Health plc is 1.55 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 0.26 of returns per unit of risk over similar time horizon. If you would invest  4,348  in CVS Health Corp on December 30, 2024 and sell it today you would earn a total of  2,393  from holding CVS Health Corp or generate 55.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	96.92%
Values	Daily Returns

Optima Health plc  vs.  CVS Health Corp

Optima Health plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optima Health plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Optima Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

CVS Health Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, CVS Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Optima Health and CVS Health

The main advantage of trading using opposite Optima Health and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optima Health 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 Optima Health plc 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.