Correlation Between CVS Health and Nippon Steel

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

By analyzing existing cross correlation between CVS Health and Nippon Steel, you can compare the effects of market volatilities on CVS Health and Nippon Steel 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 Nippon Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Nippon Steel.

Diversification Opportunities for CVS Health and Nippon Steel

0.88

Correlation Coefficient

CVS Health  Nippon Steel

Very poor diversification

The 3 months correlation between CVS and Nippon is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel 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 Nippon Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Steel has no effect on the direction of CVS Health i.e., CVS Health and Nippon Steel go up and down completely randomly.

Pair Corralation between CVS Health and Nippon Steel

Assuming the 90 days trading horizon CVS Health is expected to generate 1.86 times more return on investment than Nippon Steel. However, CVS Health is 1.86 times more volatile than Nippon Steel. It trades about 0.24 of its potential returns per unit of risk. Nippon Steel is currently generating about 0.08 per unit of risk. If you would invest  4,223  in CVS Health on December 29, 2024 and sell it today you would earn a total of  1,953  from holding CVS Health or generate 46.25% return on investment over 90 days.

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

CVS Health  vs.  Nippon Steel

CVS Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CVS Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nippon Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Nippon Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with CVS Health and Nippon Steel

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

The idea behind CVS Health and Nippon Steel 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.