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

0.48

Correlation Coefficient

APPLIED MATERIALS  CVS Health

Very weak diversification

The 3 months correlation between APPLIED and CVS is 0.48. 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 under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, APPLIED MATERIALS is 1.02 times less risky than CVS Health. The stock trades about -0.03 of its potential returns per unit of risk. The CVS Health is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,149  in CVS Health on September 3, 2024 and sell it today you would earn a total of  506.00  from holding CVS Health or generate 9.83% return on investment 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 comparatively stable basic indicators, APPLIED MATERIALS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

CVS Health

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.