Correlation Between Electra and CVS Health

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Can any of the company-specific risk be diversified away by investing in both Electra 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 Electra and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electra and CVS Health Corp, you can compare the effects of market volatilities on Electra 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 Electra with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electra and CVS Health.

Diversification Opportunities for Electra and CVS Health

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between Electra and CVS is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Electra 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 Electra 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 Electra 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 Electra i.e., Electra and CVS Health go up and down completely randomly.

Pair Corralation between Electra and CVS Health

Assuming the 90 days trading horizon Electra is expected to generate 2.35 times more return on investment than CVS Health. However, Electra is 2.35 times more volatile than CVS Health Corp. It trades about 0.13 of its potential returns per unit of risk. CVS Health Corp is currently generating about 0.22 per unit of risk. If you would invest  15,461,000  in Electra on December 29, 2023 and sell it today you would earn a total of  639,000  from holding Electra or generate 4.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy77.27%
ValuesDaily Returns

Electra  vs.  CVS Health Corp

 Performance 
       Timeline  
Electra 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Electra are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Electra may actually be approaching a critical reversion point that can send shares even higher in April 2024.
CVS Health Corp 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, CVS Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Electra and CVS Health Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Electra and CVS Health

The main advantage of trading using opposite Electra and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electra 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 Electra 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.
Check out your portfolio center.
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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