Can any of the company-specific risk be diversified away by investing in both Hoteles City 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 Hoteles City and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hoteles City Express and CVS Health, you can compare the effects of market volatilities on Hoteles City 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 Hoteles City with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hoteles City and CVS Health.
Diversification Opportunities for Hoteles City and CVS Health
The 3 months correlation between Hoteles and CVS is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Hoteles City Express and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Hoteles City 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 Hoteles City Express 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 Hoteles City i.e., Hoteles City and CVS Health go up and down completely randomly.
Pair Corralation between Hoteles City and CVS Health
Assuming the 90 days trading horizon Hoteles City Express is expected to under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, Hoteles City Express is 2.35 times less risky than CVS Health. The stock trades about -0.21 of its potential returns per unit of risk. The CVS Health is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 124,774 in CVS Health on March 6, 2024 and sell it today you would lose (18,074) from holding CVS Health or give up 14.49% of portfolio value over 90 days.
Over the last 90 days Hoteles City Express has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.
Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.