Correlation Between CVS Health and Home Depot
Can any of the company-specific risk be diversified away by investing in both CVS Health and Home Depot 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 Home Depot 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 Home Depot, you can compare the effects of market volatilities on CVS Health and Home Depot 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 Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Home Depot.
Diversification Opportunities for CVS Health and Home Depot
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between CVS and Home is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of CVS Health i.e., CVS Health and Home Depot go up and down completely randomly.
Pair Corralation between CVS Health and Home Depot
Considering the 90-day investment horizon CVS Health Corp is expected to under-perform the Home Depot. In addition to that, CVS Health is 1.43 times more volatile than Home Depot. It trades about -0.04 of its total potential returns per unit of risk. Home Depot is currently generating about 0.05 per unit of volatility. If you would invest 31,665 in Home Depot on September 4, 2024 and sell it today you would earn a total of 11,031 from holding Home Depot or generate 34.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CVS Health Corp vs. Home Depot
Performance |
| Timeline |
| CVS Health Corp |
| Home Depot |
CVS Health and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CVS Health and Home Depot
The main advantage of trading using opposite CVS Health and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.| CVS Health vs. Humana Inc | CVS Health vs. Cigna Corp | CVS Health vs. Elevance Health | CVS Health vs. Centene Corp |
| Home Depot vs. Floor Decor Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Kirklands |
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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