Correlation Between CVS Health and Melco Resorts
Can any of the company-specific risk be diversified away by investing in both CVS Health and Melco Resorts 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 Melco Resorts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVS Health and Melco Resorts Entertainment, you can compare the effects of market volatilities on CVS Health and Melco Resorts 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 Melco Resorts. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Melco Resorts.
Diversification Opportunities for CVS Health and Melco Resorts
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between CVS and Melco is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Melco Resorts Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melco Resorts Entert 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 Melco Resorts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melco Resorts Entert has no effect on the direction of CVS Health i.e., CVS Health and Melco Resorts go up and down completely randomly.
Pair Corralation between CVS Health and Melco Resorts
Assuming the 90 days trading horizon CVS Health is expected to generate 0.84 times more return on investment than Melco Resorts. However, CVS Health is 1.19 times less risky than Melco Resorts. It trades about -0.01 of its potential returns per unit of risk. Melco Resorts Entertainment is currently generating about -0.03 per unit of risk. If you would invest 4,059 in CVS Health on October 26, 2024 and sell it today you would lose (891.00) from holding CVS Health or give up 21.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 96.53% |
| Values | Daily Returns |
CVS Health vs. Melco Resorts Entertainment
Performance |
| Timeline |
| CVS Health |
| Melco Resorts Entert |
CVS Health and Melco Resorts Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CVS Health and Melco Resorts
The main advantage of trading using opposite CVS Health and Melco Resorts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Melco Resorts 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 Melco Resorts will offset losses from the drop in Melco Resorts' long position.| CVS Health vs. United Natural Foods, | CVS Health vs. Beyond Meat | CVS Health vs. Tyson Foods | CVS Health vs. Westinghouse Air Brake |
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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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