Correlation Between CVS Health and HCA Healthcare

Can any of the company-specific risk be diversified away by investing in both CVS Health and HCA Healthcare 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 HCA Healthcare 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 HCA Healthcare, you can compare the effects of market volatilities on CVS Health and HCA Healthcare 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 HCA Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and HCA Healthcare.

Diversification Opportunities for CVS Health and HCA Healthcare

0.28

Correlation Coefficient

CVS Health  HCA Healthcare

Modest diversification

The 3 months correlation between CVS and HCA is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and HCA Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCA Healthcare 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 HCA Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCA Healthcare has no effect on the direction of CVS Health i.e., CVS Health and HCA Healthcare go up and down completely randomly.

Pair Corralation between CVS Health and HCA Healthcare

Assuming the 90 days trading horizon CVS Health Corp is expected to generate 1.31 times more return on investment than HCA Healthcare. However, CVS Health is 1.31 times more volatile than HCA Healthcare. It trades about 0.02 of its potential returns per unit of risk. HCA Healthcare is currently generating about 0.0 per unit of risk. If you would invest  5,867  in CVS Health Corp on September 1, 2024 and sell it today you would earn a total of  105.00  from holding CVS Health Corp or generate 1.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

CVS Health Corp  vs.  HCA Healthcare

CVS Health Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in December 2024.

HCA Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HCA Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with CVS Health and HCA Healthcare

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

The idea behind CVS Health Corp and HCA Healthcare 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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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.