Correlation Between CVS HEALTH and Western Investment
Can any of the company-specific risk be diversified away by investing in both CVS HEALTH and Western Investment 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 Western Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVS HEALTH CDR and Western Investment, you can compare the effects of market volatilities on CVS HEALTH and Western Investment 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 Western Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS HEALTH and Western Investment.
Diversification Opportunities for CVS HEALTH and Western Investment
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between CVS and Western is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding CVS HEALTH CDR and Western Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Investment 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 CDR are associated (or correlated) with Western Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Investment has no effect on the direction of CVS HEALTH i.e., CVS HEALTH and Western Investment go up and down completely randomly.
Pair Corralation between CVS HEALTH and Western Investment
Assuming the 90 days trading horizon CVS HEALTH CDR is expected to under-perform the Western Investment. But the stock apears to be less risky and, when comparing its historical volatility, CVS HEALTH CDR is 1.79 times less risky than Western Investment. The stock trades about -0.02 of its potential returns per unit of risk. The Western Investment is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 43.00 in Western Investment on September 4, 2024 and sell it today you would earn a total of 2.00 from holding Western Investment or generate 4.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CVS HEALTH CDR vs. Western Investment
Performance |
| Timeline |
| CVS HEALTH CDR |
| Western Investment |
CVS HEALTH and Western Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CVS HEALTH and Western Investment
The main advantage of trading using opposite CVS HEALTH and Western Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS HEALTH position performs unexpectedly, Western Investment 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 Western Investment will offset losses from the drop in Western Investment's long position.| CVS HEALTH vs. iShares Canadian HYBrid | CVS HEALTH vs. Altagas Cum Red | CVS HEALTH vs. European Residential Real | CVS HEALTH vs. iShares Fundamental Hedged |
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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