Correlation Between International Biotechnology and CVS Health
Can any of the company-specific risk be diversified away by investing in both International Biotechnology 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 International Biotechnology and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Biotechnology Trust and CVS Health Corp, you can compare the effects of market volatilities on International Biotechnology 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 International Biotechnology with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and CVS Health.
Diversification Opportunities for International Biotechnology and CVS Health
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between International and CVS is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr 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 International Biotechnology 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 International Biotechnology Trust 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 International Biotechnology i.e., International Biotechnology and CVS Health go up and down completely randomly.
Pair Corralation between International Biotechnology and CVS Health
Assuming the 90 days trading horizon International Biotechnology is expected to generate 3.81 times less return on investment than CVS Health. But when comparing it to its historical volatility, International Biotechnology Trust is 2.05 times less risky than CVS Health. It trades about 0.24 of its potential returns per unit of risk. CVS Health Corp is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest 4,523 in CVS Health Corp on November 8, 2024 and sell it today you would earn a total of 1,023 from holding CVS Health Corp or generate 22.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
International Biotechnology Tr vs. CVS Health Corp
Performance |
| Timeline |
| International Biotechnology |
| CVS Health Corp |
International Biotechnology and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Biotechnology and CVS Health
The main advantage of trading using opposite International Biotechnology and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Biotechnology 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 International Biotechnology Trust and CVS Health Corp 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.
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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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