Correlation Between Federal Realty and CVS Health

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

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

Diversification Opportunities for Federal Realty and CVS Health

-0.46

Correlation Coefficient

Federal Realty  CVS Health

Very good diversification

The 3 months correlation between Federal and CVS is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Federal Realty Investment 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 Federal Realty 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 Federal Realty Investment 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 Federal Realty i.e., Federal Realty and CVS Health go up and down completely randomly.

Pair Corralation between Federal Realty and CVS Health

Assuming the 90 days trading horizon Federal Realty is expected to generate 1.81 times less return on investment than CVS Health. But when comparing it to its historical volatility, Federal Realty Investment is 3.1 times less risky than CVS Health. It trades about 0.07 of its potential returns per unit of risk. CVS Health Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,686  in CVS Health Corp on September 3, 2024 and sell it today you would earn a total of  286.00  from holding CVS Health Corp or generate 5.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Federal Realty Investment  vs.  CVS Health Corp

Federal Realty Investment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Realty Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Federal Realty is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 conflicting basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Federal Realty and CVS Health

The main advantage of trading using opposite Federal Realty and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Realty 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 Federal Realty Investment 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.