Correlation Between CVS Health and American Express
Can any of the company-specific risk be diversified away by investing in both CVS Health and American Express 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 American Express into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVS Health and American Express, you can compare the effects of market volatilities on CVS Health and American Express 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 American Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and American Express.
Diversification Opportunities for CVS Health and American Express
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between CVS and American is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 are associated (or correlated) with American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of CVS Health i.e., CVS Health and American Express go up and down completely randomly.
Pair Corralation between CVS Health and American Express
Assuming the 90 days trading horizon CVS Health is expected to generate 1.99 times less return on investment than American Express. In addition to that, CVS Health is 1.28 times more volatile than American Express. It trades about 0.1 of its total potential returns per unit of risk. American Express is currently generating about 0.26 per unit of volatility. 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 | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CVS Health vs. American Express
Performance |
| Timeline |
| CVS Health |
| American Express |
CVS Health and American Express Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CVS Health and American Express
The main advantage of trading using opposite CVS Health and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, American Express 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 American Express will offset losses from the drop in American Express' long position.| CVS Health vs. Grupo Hotelero Santa | CVS Health vs. GMxico Transportes SAB | CVS Health vs. Samsung Electronics Co | CVS Health vs. Verizon Communications |
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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 the Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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