Can any of the company-specific risk be diversified away by investing in both TransMedics 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 TransMedics and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TransMedics Group and CVS Health Corp, you can compare the effects of market volatilities on TransMedics 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 TransMedics with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of TransMedics and CVS Health.
Diversification Opportunities for TransMedics and CVS Health
The 3 months correlation between TransMedics and CVS is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding TransMedics Group 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 TransMedics 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 TransMedics Group 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 TransMedics i.e., TransMedics and CVS Health go up and down completely randomly.
Pair Corralation between TransMedics and CVS Health
Given the investment horizon of 90 days TransMedics Group is expected to generate 1.48 times more return on investment than CVS Health. However, TransMedics is 1.48 times more volatile than CVS Health Corp. It trades about 0.26 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.14 per unit of risk. If you would invest 8,504 in TransMedics Group on March 6, 2024 and sell it today you would earn a total of 4,944 from holding TransMedics Group or generate 58.14% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in TransMedics Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, TransMedics showed solid returns over the last few months and may actually be approaching a breakup point.
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 unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.