Correlation Between Microsoft and CVS Health
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and CVS Health, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and CVS Health.
Diversification Opportunities for Microsoft and CVS Health
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Microsoft and CVS is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and CVS Health go up and down completely randomly.
Pair Corralation between Microsoft and CVS Health
Assuming the 90 days trading horizon Microsoft is expected to generate 0.4 times more return on investment than CVS Health. However, Microsoft is 2.49 times less risky than CVS Health. It trades about 0.22 of its potential returns per unit of risk. CVS Health is currently generating about -0.57 per unit of risk. If you would invest 40,045 in Microsoft on September 28, 2024 and sell it today you would earn a total of 1,785 from holding Microsoft or generate 4.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. CVS Health
Performance |
| Timeline |
| Microsoft |
| CVS Health |
Microsoft and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and CVS Health
The main advantage of trading using opposite Microsoft and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. JLT MOBILE PUTER | Microsoft vs. Consolidated Communications Holdings | Microsoft vs. Waste Management | Microsoft vs. WillScot Mobile Mini |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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