Correlation Between CVS Health and Federal Realty

Can any of the company-specific risk be diversified away by investing in both CVS Health and Federal Realty 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 CVS Health and Federal Realty into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CVS Health Corp and Federal Realty Investment, you can compare the effects of market volatilities on CVS Health and Federal Realty 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 CVS Health with a short position of Federal Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Federal Realty.

Diversification Opportunities for CVS Health and Federal Realty

-0.31

Correlation Coefficient

CVS Health  Federal Realty

Very good diversification

The 3 months correlation between CVS and Federal is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Federal Realty Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Realty Investment and CVS Health 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 CVS Health Corp are associated (or correlated) with Federal Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Realty Investment has no effect on the direction of CVS Health i.e., CVS Health and Federal Realty go up and down completely randomly.

Pair Corralation between CVS Health and Federal Realty

Assuming the 90 days trading horizon CVS Health Corp is expected to generate 2.57 times more return on investment than Federal Realty. However, CVS Health is 2.57 times more volatile than Federal Realty Investment. It trades about 0.05 of its potential returns per unit of risk. Federal Realty Investment is currently generating about -0.13 per unit of risk. If you would invest  5,909  in CVS Health Corp on November 29, 2024 and sell it today you would earn a total of  424.00  from holding CVS Health Corp or generate 7.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

CVS Health Corp  vs.  Federal Realty Investment

CVS Health Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Federal Realty Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Realty Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with CVS Health and Federal Realty

The main advantage of trading using opposite CVS Health and Federal Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Federal Realty 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 Federal Realty will offset losses from the drop in Federal Realty's long position.

The idea behind CVS Health Corp and Federal Realty Investment 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.