Correlation Between Applied Materials and CVS Health

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

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

Diversification Opportunities for Applied Materials and CVS Health

0.58

Correlation Coefficient

Applied Materials  CVS Health

Very weak diversification

The 3 months correlation between Applied and CVS is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and CVS Health go up and down completely randomly.

Pair Corralation between Applied Materials and CVS Health

Assuming the 90 days trading horizon Applied Materials is expected to generate 0.99 times more return on investment than CVS Health. However, Applied Materials is 1.01 times less risky than CVS Health. It trades about -0.06 of its potential returns per unit of risk. CVS Health is currently generating about -0.11 per unit of risk. If you would invest  375,199  in Applied Materials on September 23, 2024 and sell it today you would lose (45,899) from holding Applied Materials or give up 12.23% of portfolio value over 90 days.

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

Applied Materials  vs.  CVS Health

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly 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 Applied Materials and CVS Health

The main advantage of trading using opposite Applied Materials and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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 Applied Materials 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.