Correlation Between Brookfield and CVS Health

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

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

Diversification Opportunities for Brookfield and CVS Health

-0.67

Correlation Coefficient

Brookfield  CVS Health

Excellent diversification

The 3 months correlation between Brookfield and CVS is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Brookfield 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 Brookfield 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 Brookfield i.e., Brookfield and CVS Health go up and down completely randomly.

Pair Corralation between Brookfield and CVS Health

Assuming the 90 days trading horizon Brookfield is expected to under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, Brookfield is 1.39 times less risky than CVS Health. The stock trades about -0.11 of its potential returns per unit of risk. The CVS Health is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,732  in CVS Health on December 24, 2024 and sell it today you would earn a total of  1,165  from holding CVS Health or generate 42.64% return on investment over 90 days.

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

Brookfield  vs.  CVS Health

Brookfield

Risk-Adjusted Performance

Very Weak

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

CVS Health

Risk-Adjusted Performance

Solid

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

Pair Trading with Brookfield and CVS Health

The main advantage of trading using opposite Brookfield and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookfield 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 Brookfield 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.