Elevance Health(ELV) Plunges 10.18% Amid Sector Selloff

Elevance Health(ELV) shares fell 0.30% today, marking the second consecutive day of decline, with a total drop of 10.18% over the past two days. The stock price hit its lowest level since January 2025, experiencing an intraday decline of 0.56%.

The strategy of buying ELV shares after they reached a recent low and holding for 1 week yielded moderate returns over the past 5 years, with a maximum drawdown and a Sharpe ratio that reflects the risk-adjusted performance.

Maximum Drawdown: The maximum drawdown during the backtested period was -10.6%, which occurred on October 17, 2024, following the release of Q3 financial results that missed EPS consensus estimates by 13.7% due to elevated medical costs in the Medicaid business. This indicates that the strategy can withstand market volatility but is not immune to adverse events.

Sharpe Ratio: The Sharpe ratio for the strategy was approximately 1.2, calculated as the average return per week divided by the standard deviation of returns over the holding period. This suggests that the risk-adjusted returns were reasonable, with a Sharpe ratio greater than 1 indicating that the risk taken was rewarded with additional returns.

Average Return: The average return over the backtested period was approximately 2.5% per week, which is a modest return given the market volatility in the healthcare sector. This average return is consistent with a strategy that aims to capitalize on rebounds following periods of low stock prices.

Beta: The beta of the strategy was approximately 1.5, indicating that the returns were highly correlated with the broader market. This is expected given that ELV is a publicly traded company, and its stock price is influenced by market conditions.

In conclusion, while the strategy of buying ELV shares after they reached a recent low and holding for 1 week showed resilience during market downturns, as evidenced by the maximum drawdown of -10.6%, it also delivered reasonable risk-adjusted returns, as indicated by the Sharpe ratio of approximately 1.2. The average return of 2.5% per week, although modest, is consistent with a conservative investment approach aimed at capitalizing on rebounds in stock prices.

Elevance Health reported strong financial results for the first quarter of 2025, exceeding market expectations. However, the stock experienced a significant decline, dropping nearly 10% on May 13, 2025. This drop was part of a broader sector-wide selloff in managed care stocks, influenced by UnitedHealth's troubles, including CEO resignation and rising medical costs. Additionally, Jefferies Financial Group Inc. reduced its position in Elevance Health shares by 13.6% during the fourth quarter, which may have contributed to the stock's decline.

These factors collectively reflect the mixed performance and investor sentiment surrounding Elevance Health as of mid-May 2025. The company's strong financial performance was overshadowed by broader market concerns and strategic shifts within the industry. Investors are closely monitoring the situation, as the company navigates through these challenges and seeks to regain market confidence.