Correlation Between Barclays PLC and CVS Health

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

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

Diversification Opportunities for Barclays PLC and CVS Health

-0.09

Correlation Coefficient

Barclays PLC  CVS Health

Good diversification

The 3 months correlation between Barclays and CVS is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Barclays PLC and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Barclays PLC 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 Barclays PLC 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 Barclays PLC i.e., Barclays PLC and CVS Health go up and down completely randomly.

Pair Corralation between Barclays PLC and CVS Health

Assuming the 90 days trading horizon Barclays PLC is expected to generate 0.6 times more return on investment than CVS Health. However, Barclays PLC is 1.67 times less risky than CVS Health. It trades about 0.17 of its potential returns per unit of risk. CVS Health is currently generating about -0.13 per unit of risk. If you would invest  6,818  in Barclays PLC on October 10, 2024 and sell it today you would earn a total of  1,397  from holding Barclays PLC or generate 20.49% return on investment over 90 days.

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

Barclays PLC  vs.  CVS Health

Barclays PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Barclays PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Barclays PLC 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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Barclays PLC and CVS Health

The main advantage of trading using opposite Barclays PLC and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barclays PLC 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 Barclays PLC 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.