Correlation Between SMA Solar and CVS Health

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

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

Diversification Opportunities for SMA Solar and CVS Health

0.2

Correlation Coefficient

SMA Solar  CVS Health

Modest diversification

The 3 months correlation between SMA and CVS is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and SMA Solar 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 SMA Solar Technology 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 SMA Solar i.e., SMA Solar and CVS Health go up and down completely randomly.

Pair Corralation between SMA Solar and CVS Health

Assuming the 90 days horizon SMA Solar Technology is expected to under-perform the CVS Health. In addition to that, SMA Solar is 1.83 times more volatile than CVS Health. It trades about -0.06 of its total potential returns per unit of risk. CVS Health is currently generating about -0.05 per unit of volatility. If you would invest  8,089  in CVS Health on September 21, 2024 and sell it today you would lose (3,829) from holding CVS Health or give up 47.34% of portfolio value over 90 days.

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

SMA Solar Technology  vs.  CVS Health

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with SMA Solar and CVS Health

The main advantage of trading using opposite SMA Solar and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMA Solar 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 SMA Solar Technology 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.