Correlation Between IShares Fundamental and CVS HEALTH

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

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

Diversification Opportunities for IShares Fundamental and CVS HEALTH

0.02

Correlation Coefficient

IShares Fundamental  CVS HEALTH

Significant diversification

The 3 months correlation between IShares and CVS is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding iShares Fundamental Hedged 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 IShares Fundamental 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 iShares Fundamental Hedged 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 IShares Fundamental i.e., IShares Fundamental and CVS HEALTH go up and down completely randomly.

Pair Corralation between IShares Fundamental and CVS HEALTH

Assuming the 90 days trading horizon iShares Fundamental Hedged is expected to under-perform the CVS HEALTH. But the etf apears to be less risky and, when comparing its historical volatility, iShares Fundamental Hedged is 3.33 times less risky than CVS HEALTH. The etf trades about -0.01 of its potential returns per unit of risk. The CVS HEALTH CDR is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,080  in CVS HEALTH CDR on December 29, 2024 and sell it today you would earn a total of  579.00  from holding CVS HEALTH CDR or generate 53.61% return on investment over 90 days.

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

iShares Fundamental Hedged  vs.  CVS HEALTH CDR

iShares Fundamental

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Fundamental Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Fundamental is not utilizing all of its potentials. The recent stock price disarray, 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 21 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, CVS HEALTH displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Fundamental and CVS HEALTH

The main advantage of trading using opposite IShares Fundamental and CVS HEALTH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Fundamental 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 iShares Fundamental Hedged 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.