Correlation Between Toyota and CVS Health
Can any of the company-specific risk be diversified away by investing in both Toyota 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 Toyota and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toyota Motor Corp and CVS Health Corp, you can compare the effects of market volatilities on Toyota 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 Toyota with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and CVS Health.
Diversification Opportunities for Toyota and CVS Health
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Toyota and CVS is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp 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 Toyota 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 Toyota Motor Corp 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 Toyota i.e., Toyota and CVS Health go up and down completely randomly.
Pair Corralation between Toyota and CVS Health
Assuming the 90 days trading horizon Toyota is expected to generate 1.75 times less return on investment than CVS Health. But when comparing it to its historical volatility, Toyota Motor Corp is 3.89 times less risky than CVS Health. It trades about 0.11 of its potential returns per unit of risk. CVS Health Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 5,737 in CVS Health Corp on August 29, 2024 and sell it today you would earn a total of 163.00 from holding CVS Health Corp or generate 2.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toyota Motor Corp vs. CVS Health Corp
Performance |
| Timeline |
| Toyota Motor Corp |
| CVS Health Corp |
Toyota and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and CVS Health
The main advantage of trading using opposite Toyota and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota 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 Toyota Motor Corp 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.| CVS Health vs. Samsung Electronics Co | CVS Health vs. Samsung Electronics Co | CVS Health vs. Hyundai Motor | CVS Health vs. Toyota Motor Corp |
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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