Correlation Between Wells Fargo and CVS Health
Can any of the company-specific risk be diversified away by investing in both Wells Fargo 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 Wells Fargo and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo and CVS Health, you can compare the effects of market volatilities on Wells Fargo 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 Wells Fargo with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and CVS Health.
Diversification Opportunities for Wells Fargo and CVS Health
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Wells and CVS is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Wells Fargo 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 Wells Fargo 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 Wells Fargo i.e., Wells Fargo and CVS Health go up and down completely randomly.
Pair Corralation between Wells Fargo and CVS Health
Assuming the 90 days trading horizon Wells Fargo is expected to generate 0.96 times more return on investment than CVS Health. However, Wells Fargo is 1.04 times less risky than CVS Health. It trades about 0.08 of its potential returns per unit of risk. CVS Health is currently generating about -0.03 per unit of risk. If you would invest 78,688 in Wells Fargo on August 29, 2024 and sell it today you would earn a total of 82,812 from holding Wells Fargo or generate 105.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo vs. CVS Health
Performance |
| Timeline |
| Wells Fargo |
| CVS Health |
Wells Fargo and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and CVS Health
The main advantage of trading using opposite Wells Fargo and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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.| Wells Fargo vs. CVS Health | Wells Fargo vs. DXC Technology | Wells Fargo vs. Genworth Financial | Wells Fargo vs. Grupo Carso SAB |
| CVS Health vs. Grupo Hotelero Santa | CVS Health vs. GMxico Transportes SAB | CVS Health vs. Samsung Electronics Co | CVS Health vs. Verizon Communications |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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