Correlation Between CVS Health and Digital Realty

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

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

Diversification Opportunities for CVS Health and Digital Realty

-0.27

Correlation Coefficient

CVS Health  Digital Realty

Very good diversification

The 3 months correlation between CVS and Digital is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Digital Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Realty Trust and CVS Health 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 CVS Health are associated (or correlated) with Digital Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Realty Trust has no effect on the direction of CVS Health i.e., CVS Health and Digital Realty go up and down completely randomly.

Pair Corralation between CVS Health and Digital Realty

Assuming the 90 days trading horizon CVS Health is expected to under-perform the Digital Realty. In addition to that, CVS Health is 1.67 times more volatile than Digital Realty Trust. It trades about -0.15 of its total potential returns per unit of risk. Digital Realty Trust is currently generating about 0.2 per unit of volatility. If you would invest  14,979  in Digital Realty Trust on September 19, 2024 and sell it today you would earn a total of  2,645  from holding Digital Realty Trust or generate 17.66% return on investment over 90 days.

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

CVS Health  vs.  Digital Realty Trust

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. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Digital Realty Trust

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Digital Realty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Digital Realty

The main advantage of trading using opposite CVS Health and Digital Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Digital Realty 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 Digital Realty will offset losses from the drop in Digital Realty's long position.

The idea behind CVS Health and Digital Realty Trust 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.