Correlation Between CVS Health and Prudential Financial
Can any of the company-specific risk be diversified away by investing in both CVS Health and Prudential Financial 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 Prudential Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVS Health and Prudential Financial, you can compare the effects of market volatilities on CVS Health and Prudential Financial 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 Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Prudential Financial.
Diversification Opportunities for CVS Health and Prudential Financial
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between CVS and Prudential is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 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 Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of CVS Health i.e., CVS Health and Prudential Financial go up and down completely randomly.
Pair Corralation between CVS Health and Prudential Financial
Assuming the 90 days trading horizon CVS Health is expected to generate 3.48 times less return on investment than Prudential Financial. In addition to that, CVS Health is 1.66 times more volatile than Prudential Financial. It trades about 0.02 of its total potential returns per unit of risk. Prudential Financial is currently generating about 0.14 per unit of volatility. If you would invest 198,872 in Prudential Financial on November 2, 2024 and sell it today you would earn a total of 45,128 from holding Prudential Financial or generate 22.69% 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. Prudential Financial
Performance |
| Timeline |
| CVS Health |
| Prudential Financial |
CVS Health and Prudential Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CVS Health and Prudential Financial
The main advantage of trading using opposite CVS Health and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Prudential Financial 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 Prudential Financial will offset losses from the drop in Prudential Financial's long position.| CVS Health vs. United Airlines Holdings | CVS Health vs. Martin Marietta Materials | CVS Health vs. Hoteles City Express | CVS Health vs. FibraHotel |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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