Correlation Between Applied Materials and CVS Health
Can any of the company-specific risk be diversified away by investing in both Applied Materials 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 Applied Materials and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and CVS Health, you can compare the effects of market volatilities on Applied Materials 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 Applied Materials with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and CVS Health.
Diversification Opportunities for Applied Materials and CVS Health
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Applied and CVS is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and CVS Health go up and down completely randomly.
Pair Corralation between Applied Materials and CVS Health
Assuming the 90 days trading horizon Applied Materials is expected to under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, Applied Materials is 1.13 times less risky than CVS Health. The stock trades about -0.09 of its potential returns per unit of risk. The CVS Health is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 114,100 in CVS Health on August 31, 2024 and sell it today you would earn a total of 9,410 from holding CVS Health or generate 8.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Materials vs. CVS Health
Performance |
| Timeline |
| Applied Materials |
| CVS Health |
Applied Materials and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and CVS Health
The main advantage of trading using opposite Applied Materials and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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.| Applied Materials vs. Micron Technology | Applied Materials vs. First Republic Bank | Applied Materials vs. Grupo Sports World | Applied Materials vs. Grupo Carso SAB |
| CVS Health vs. The Select Sector | CVS Health vs. Promotora y Operadora | CVS Health vs. SPDR Series Trust | CVS Health vs. iShares Trust |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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