Correlation Between American Express and CVS Health
Can any of the company-specific risk be diversified away by investing in both American Express 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 American Express and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and CVS Health, you can compare the effects of market volatilities on American Express 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 American Express with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and CVS Health.
Diversification Opportunities for American Express and CVS Health
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between American and CVS is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding American Express and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and American Express 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 American 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 American Express i.e., American Express and CVS Health go up and down completely randomly.
Pair Corralation between American Express and CVS Health
Assuming the 90 days trading horizon American Express is expected to generate 0.78 times more return on investment than CVS Health. However, American Express is 1.28 times less risky than CVS Health. It trades about 0.27 of its potential returns per unit of risk. CVS Health is currently generating about 0.11 per unit of risk. If you would invest 543,770 in American Express on August 29, 2024 and sell it today you would earn a total of 84,230 from holding American Express or generate 15.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Express vs. CVS Health
Performance |
| Timeline |
| American Express |
| CVS Health |
American Express and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Express and CVS Health
The main advantage of trading using opposite American Express and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express 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.| American Express vs. McEwen Mining | American Express vs. Southwest Airlines | American Express vs. KB Home | American Express vs. CVS Health |
| CVS Health vs. Glencore plc | CVS Health vs. iShares Trust | CVS Health vs. US Bancorp | CVS Health vs. American Express |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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