Correlation Between CVS Health and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both CVS Health and Wells Fargo 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 Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVS Health and Wells Fargo, you can compare the effects of market volatilities on CVS Health and Wells Fargo 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 Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Wells Fargo.
Diversification Opportunities for CVS Health and Wells Fargo
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between CVS and Wells is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo 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 Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo has no effect on the direction of CVS Health i.e., CVS Health and Wells Fargo go up and down completely randomly.
Pair Corralation between CVS Health and Wells Fargo
Assuming the 90 days trading horizon CVS Health is expected to generate 2.56 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, CVS Health is 1.18 times less risky than Wells Fargo. It trades about 0.12 of its potential returns per unit of risk. Wells Fargo is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 129,256 in Wells Fargo on August 29, 2024 and sell it today you would earn a total of 28,744 from holding Wells Fargo or generate 22.24% 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. Wells Fargo
Performance |
| Timeline |
| CVS Health |
| Wells Fargo |
CVS Health and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CVS Health and Wells Fargo
The main advantage of trading using opposite CVS Health and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Wells Fargo 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 Wells Fargo will offset losses from the drop in Wells Fargo's 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 |
| Wells Fargo vs. CVS Health | Wells Fargo vs. DXC Technology | Wells Fargo vs. Genworth Financial | Wells Fargo vs. Grupo Carso SAB |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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