Correlation Between BYD Co and CVS Health

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

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

Diversification Opportunities for BYD Co and CVS Health

0.43

Correlation Coefficient

BYD Co  CVS Health

Very weak diversification

The 3 months correlation between BYD and CVS is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co 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 BYD Co 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 BYD Co 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 BYD Co i.e., BYD Co and CVS Health go up and down completely randomly.

Pair Corralation between BYD Co and CVS Health

Assuming the 90 days trading horizon BYD Co is expected to generate 1.23 times less return on investment than CVS Health. In addition to that, BYD Co is 3.67 times more volatile than CVS Health Corp. It trades about 0.06 of its total potential returns per unit of risk. CVS Health Corp is currently generating about 0.28 per unit of volatility. If you would invest  4,375  in CVS Health Corp on December 20, 2024 and sell it today you would earn a total of  2,488  from holding CVS Health Corp or generate 56.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

BYD Co  vs.  CVS Health Corp

BYD Co

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, BYD Co unveiled solid returns over the last few months and may actually be approaching a breakup point.

CVS Health Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CVS Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BYD Co and CVS Health

The main advantage of trading using opposite BYD Co and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Co 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 BYD Co 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.