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 CDR, 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

-0.37

Correlation Coefficient

Brookfield  CVS HEALTH

Very good diversification

The 3 months correlation between Brookfield and CVS is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield 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 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 CDR 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 horizon Brookfield is expected to generate 0.5 times more return on investment than CVS HEALTH. However, Brookfield is 2.0 times less risky than CVS HEALTH. It trades about -0.05 of its potential returns per unit of risk. CVS HEALTH CDR is currently generating about -0.38 per unit of risk. If you would invest  8,416  in Brookfield on October 6, 2024 and sell it today you would lose (127.00) from holding Brookfield or give up 1.51% of portfolio value over 90 days.

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

Brookfield  vs.  CVS HEALTH CDR

Brookfield

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brookfield displayed solid returns over the last few months and may actually be approaching a breakup point.

CVS HEALTH CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.