Correlation Between HCA Healthcare and CVS Health

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

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

Diversification Opportunities for HCA Healthcare and CVS Health

0.28

Correlation Coefficient

HCA Healthcare  CVS Health

Modest diversification

The 3 months correlation between HCA and CVS is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding HCA Healthcare 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 HCA Healthcare 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 HCA Healthcare 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 HCA Healthcare i.e., HCA Healthcare and CVS Health go up and down completely randomly.

Pair Corralation between HCA Healthcare and CVS Health

Assuming the 90 days trading horizon HCA Healthcare is expected to generate 6.19 times less return on investment than CVS Health. But when comparing it to its historical volatility, HCA Healthcare is 1.31 times less risky than CVS Health. It trades about 0.0 of its potential returns per unit of risk. CVS Health Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. 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

HCA Healthcare  vs.  CVS Health Corp

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.

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.

Pair Trading with HCA Healthcare and CVS Health

The main advantage of trading using opposite HCA Healthcare and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HCA Healthcare 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 HCA Healthcare 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.