Correlation Between Sovereign Metals and Cardinal Health

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

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

Diversification Opportunities for Sovereign Metals and Cardinal Health

0.66

Correlation Coefficient

Sovereign Metals  Cardinal Health

Poor diversification

The 3 months correlation between Sovereign and Cardinal is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Sovereign Metals and Cardinal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Health and Sovereign Metals 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 Sovereign Metals are associated (or correlated) with Cardinal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Health has no effect on the direction of Sovereign Metals i.e., Sovereign Metals and Cardinal Health go up and down completely randomly.

Pair Corralation between Sovereign Metals and Cardinal Health

Assuming the 90 days trading horizon Sovereign Metals is expected to generate 1.95 times more return on investment than Cardinal Health. However, Sovereign Metals is 1.95 times more volatile than Cardinal Health. It trades about 0.08 of its potential returns per unit of risk. Cardinal Health is currently generating about 0.12 per unit of risk. If you would invest  3,600  in Sovereign Metals on September 5, 2024 and sell it today you would earn a total of  450.00  from holding Sovereign Metals or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Sovereign Metals  vs.  Cardinal Health

Sovereign Metals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sovereign Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Cardinal Health

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cardinal Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sovereign Metals and Cardinal Health

The main advantage of trading using opposite Sovereign Metals and Cardinal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sovereign Metals position performs unexpectedly, Cardinal 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 Cardinal Health will offset losses from the drop in Cardinal Health's long position.

The idea behind Sovereign Metals and Cardinal 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.