Correlation Between Automatic Data and CVS Health

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

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

Diversification Opportunities for Automatic Data and CVS Health

-0.38

Correlation Coefficient

Automatic Data  CVS Health

Very good diversification

The 3 months correlation between Automatic and CVS is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Automatic Data 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 Automatic Data Processing 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 has no effect on the direction of Automatic Data i.e., Automatic Data and CVS Health go up and down completely randomly.

Pair Corralation between Automatic Data and CVS Health

Assuming the 90 days trading horizon Automatic Data Processing is expected to generate 0.32 times more return on investment than CVS Health. However, Automatic Data Processing is 3.09 times less risky than CVS Health. It trades about 0.15 of its potential returns per unit of risk. CVS Health is currently generating about -0.1 per unit of risk. If you would invest  6,979  in Automatic Data Processing on September 27, 2024 and sell it today you would earn a total of  497.00  from holding Automatic Data Processing or generate 7.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Automatic Data Processing  vs.  CVS Health

Automatic Data Processing

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Automatic Data sustained solid returns over the last few months and may actually be approaching a breakup point.

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Automatic Data and CVS Health

The main advantage of trading using opposite Automatic Data and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automatic Data 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 Automatic Data Processing and CVS Health 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.