Correlation Between Ford and CVS Health
Can any of the company-specific risk be diversified away by investing in both Ford and CVS Health 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 Ford and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and CVS Health, you can compare the effects of market volatilities on Ford and CVS Health 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 Ford with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and CVS Health.
Diversification Opportunities for Ford and CVS Health
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and CVS is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Ford 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 Ford Motor are associated (or correlated) with CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health has no effect on the direction of Ford i.e., Ford and CVS Health go up and down completely randomly.
Pair Corralation between Ford and CVS Health
Taking into account the 90-day investment horizon Ford is expected to generate 5.17 times less return on investment than CVS Health. But when comparing it to its historical volatility, Ford Motor is 1.25 times less risky than CVS Health. It trades about 0.13 of its potential returns per unit of risk. CVS Health is currently generating about 0.55 of returns per unit of risk over similar time horizon. If you would invest 90,654 in CVS Health on November 3, 2024 and sell it today you would earn a total of 26,546 from holding CVS Health or generate 29.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 91.3% |
| Values | Daily Returns |
Ford Motor vs. CVS Health
Performance |
| Timeline |
| Ford Motor |
| CVS Health |
Ford and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and CVS Health
The main advantage of trading using opposite Ford and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, CVS Health 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 CVS Health will offset losses from the drop in CVS Health's long position.The idea behind Ford Motor and CVS Health pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| CVS Health vs. Lloyds Banking Group | CVS Health vs. Delta Air Lines | CVS Health vs. Southern Copper | CVS Health vs. GMxico Transportes 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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