Correlation Between Boston Scientific and CVS Health

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

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

Diversification Opportunities for Boston Scientific and CVS Health

-0.4

Correlation Coefficient

Boston Scientific  CVS Health

Very good diversification

The 3 months correlation between Boston and CVS is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Boston Scientific and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Boston Scientific 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 Boston Scientific 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 Boston Scientific i.e., Boston Scientific and CVS Health go up and down completely randomly.

Pair Corralation between Boston Scientific and CVS Health

Assuming the 90 days trading horizon Boston Scientific is expected to generate 0.45 times more return on investment than CVS Health. However, Boston Scientific is 2.2 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 -0.04 per unit of risk. If you would invest  43,516  in Boston Scientific on September 30, 2024 and sell it today you would earn a total of  12,800  from holding Boston Scientific or generate 29.41% return on investment over 90 days.

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

Boston Scientific  vs.  CVS Health

Boston Scientific

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Scientific are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Boston Scientific 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Boston Scientific and CVS Health

The main advantage of trading using opposite Boston Scientific and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boston Scientific 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 Boston Scientific 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.