Correlation Between CVS Health and Tesla

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Can any of the company-specific risk be diversified away by investing in both CVS Health and Tesla 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 Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVS Health and Tesla Inc, you can compare the effects of market volatilities on CVS Health and Tesla 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 Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Tesla.

Diversification Opportunities for CVS Health and Tesla

0.03
  Correlation Coefficient

Significant diversification

The 3 months correlation between CVS and Tesla is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc 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 Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of CVS Health i.e., CVS Health and Tesla go up and down completely randomly.

Pair Corralation between CVS Health and Tesla

Assuming the 90 days trading horizon CVS Health is expected to generate 4.35 times less return on investment than Tesla. But when comparing it to its historical volatility, CVS Health is 1.5 times less risky than Tesla. It trades about 0.12 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  501,254  in Tesla Inc on September 1, 2024 and sell it today you would earn a total of  198,746  from holding Tesla Inc or generate 39.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

CVS Health  vs.  Tesla Inc

 Performance 
       Timeline  
CVS Health 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Tesla Inc 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Tesla showed solid returns over the last few months and may actually be approaching a breakup point.

CVS Health and Tesla Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CVS Health and Tesla

The main advantage of trading using opposite CVS Health and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Tesla 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 Tesla will offset losses from the drop in Tesla's long position.
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The idea behind CVS Health and Tesla Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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