Correlation Between BCE and CVS HEALTH

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

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

Diversification Opportunities for BCE and CVS HEALTH

0.42

Correlation Coefficient

BCE  CVS HEALTH

Very weak diversification

The 3 months correlation between BCE and CVS is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc Pref and CVS HEALTH CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS HEALTH CDR and BCE 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 BCE Inc Pref 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 CDR has no effect on the direction of BCE i.e., BCE and CVS HEALTH go up and down completely randomly.

Pair Corralation between BCE and CVS HEALTH

Assuming the 90 days trading horizon BCE is expected to generate 10.6 times less return on investment than CVS HEALTH. But when comparing it to its historical volatility, BCE Inc Pref is 4.15 times less risky than CVS HEALTH. It trades about 0.11 of its potential returns per unit of risk. CVS HEALTH CDR is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  1,091  in CVS HEALTH CDR on December 20, 2024 and sell it today you would earn a total of  605.00  from holding CVS HEALTH CDR or generate 55.45% return on investment over 90 days.

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

BCE Inc Pref  vs.  CVS HEALTH CDR

BCE Inc Pref

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BCE Inc Pref are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, BCE is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

CVS HEALTH CDR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS HEALTH CDR are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, CVS HEALTH displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BCE and CVS HEALTH

The main advantage of trading using opposite BCE and CVS HEALTH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BCE 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 BCE Inc Pref and CVS HEALTH CDR 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.