Correlation Between Brookdale Senior and CVS Health

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

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

Diversification Opportunities for Brookdale Senior and CVS Health

0.73

Correlation Coefficient

Brookdale Senior  CVS Health

Poor diversification

The 3 months correlation between Brookdale and CVS is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Brookdale Senior Living and CVS Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health Corp and Brookdale Senior 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 Brookdale Senior Living 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 Corp has no effect on the direction of Brookdale Senior i.e., Brookdale Senior and CVS Health go up and down completely randomly.

Pair Corralation between Brookdale Senior and CVS Health

Considering the 90-day investment horizon Brookdale Senior is expected to generate 1.91 times less return on investment than CVS Health. In addition to that, Brookdale Senior is 1.0 times more volatile than CVS Health Corp. It trades about 0.15 of its total potential returns per unit of risk. CVS Health Corp is currently generating about 0.29 per unit of volatility. If you would invest  4,339  in CVS Health Corp on December 30, 2024 and sell it today you would earn a total of  2,375  from holding CVS Health Corp or generate 54.74% return on investment over 90 days.

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

Brookdale Senior Living  vs.  CVS Health Corp

Brookdale Senior Living

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookdale Senior Living are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward-looking signals, Brookdale Senior exhibited solid returns over the last few months and may actually be approaching a breakup point.

CVS Health Corp

Risk-Adjusted Performance

Solid

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

Pair Trading with Brookdale Senior and CVS Health

The main advantage of trading using opposite Brookdale Senior and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookdale Senior 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 Brookdale Senior Living and CVS Health Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.