Correlation Between CVS Health and American Airlines
Can any of the company-specific risk be diversified away by investing in both CVS Health and American Airlines 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 Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVS Health Corp and American Airlines Group, you can compare the effects of market volatilities on CVS Health and American Airlines 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 Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and American Airlines.
Diversification Opportunities for CVS Health and American Airlines
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between CVS and American is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 Corp are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of CVS Health i.e., CVS Health and American Airlines go up and down completely randomly.
Pair Corralation between CVS Health and American Airlines
Considering the 90-day investment horizon CVS Health Corp is expected to under-perform the American Airlines. But the stock apears to be less risky and, when comparing its historical volatility, CVS Health Corp is 1.31 times less risky than American Airlines. The stock trades about -0.05 of its potential returns per unit of risk. The American Airlines Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,397 in American Airlines Group on August 23, 2024 and sell it today you would earn a total of 49.00 from holding American Airlines Group or generate 3.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CVS Health Corp vs. American Airlines Group
Performance |
| Timeline |
| CVS Health Corp |
| American Airlines |
CVS Health and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CVS Health and American Airlines
The main advantage of trading using opposite CVS Health and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, American Airlines 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 Airlines will offset losses from the drop in American Airlines' long position.| CVS Health vs. Definitive Healthcare Corp | CVS Health vs. Edwards Lifesciences Corp | CVS Health vs. Mednax Inc | CVS Health vs. Outset Medical |
| American Airlines vs. Canadian Pacific Railway | American Airlines vs. Werner Enterprises | American Airlines vs. Canadian National Railway | American Airlines vs. CSX Corporation |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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