Correlation Between Healthcare Services and CVS Health
Can any of the company-specific risk be diversified away by investing in both Healthcare Services 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 Healthcare Services and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Healthcare Services Group and CVS Health Corp, you can compare the effects of market volatilities on Healthcare Services 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 Healthcare Services with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Healthcare Services and CVS Health.
Diversification Opportunities for Healthcare Services and CVS Health
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Healthcare and CVS is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Services Group and CVS Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health Corp and Healthcare Services 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 Healthcare Services Group 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 Corp has no effect on the direction of Healthcare Services i.e., Healthcare Services and CVS Health go up and down completely randomly.
Pair Corralation between Healthcare Services and CVS Health
Given the investment horizon of 90 days Healthcare Services Group is expected to under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, Healthcare Services Group is 1.86 times less risky than CVS Health. The stock trades about -0.05 of its potential returns per unit of risk. The CVS Health Corp is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 5,424 in CVS Health Corp on December 8, 2024 and sell it today you would earn a total of 1,209 from holding CVS Health Corp or generate 22.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Healthcare Services Group vs. CVS Health Corp
Performance |
| Timeline |
| Healthcare Services |
| CVS Health Corp |
Healthcare Services and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Healthcare Services and CVS Health
The main advantage of trading using opposite Healthcare Services and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Healthcare Services 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.| Healthcare Services vs. Pennant Group | ||
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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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