Correlation Between CVS Health and Albireo Pharma

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

Diversification Opportunities for CVS Health and Albireo Pharma

  Correlation Coefficient

Excellent diversification

The 3 months correlation between CVS Health and Albireo is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Albireo Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albireo Pharma and CVS 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 CVS Health Corp are associated (or correlated) with Albireo Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albireo Pharma has no effect on the direction of CVS Health i.e., CVS Health and Albireo Pharma go up and down completely randomly.

Pair Corralation between CVS Health and Albireo Pharma

Considering the 90-day investment horizon CVS Health Corp is expected to under-perform the Albireo Pharma. But the stock apears to be less risky and, when comparing its historical volatility, CVS Health Corp is 11.47 times less risky than Albireo Pharma. The stock trades about -0.31 of its potential returns per unit of risk. The Albireo Pharma is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,801  in Albireo Pharma on December 26, 2022 and sell it today you would earn a total of  2,614  from holding Albireo Pharma or generate 145.14% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
ValuesDaily Returns

CVS Health Corp  vs.  Albireo Pharma

 Performance (%) 
CVS Health Corp 

CVS Health Performance

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Over the last 90 days CVS Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2023. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
Albireo Pharma 

Albireo Performance

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Over the last 90 days Albireo Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak fundamental drivers, Albireo Pharma displayed solid returns over the last few months and may actually be approaching a breakup point.

CVS Health and Albireo Pharma Volatility Contrast

   Predicted Return Density   

Pair Trading with CVS Health and Albireo Pharma

The main advantage of trading using opposite CVS Health and Albireo Pharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Albireo Pharma 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 Albireo Pharma will offset losses from the drop in Albireo Pharma's long position.
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The idea behind CVS Health Corp and Albireo Pharma 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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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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