Correlation Between CVS Health and SCANSOURCE

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

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

Diversification Opportunities for CVS Health and SCANSOURCE

-0.21

Correlation Coefficient

CVS Health  SCANSOURCE

Very good diversification

The 3 months correlation between CVS and SCANSOURCE is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and SCANSOURCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCANSOURCE 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 SCANSOURCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCANSOURCE has no effect on the direction of CVS Health i.e., CVS Health and SCANSOURCE go up and down completely randomly.

Pair Corralation between CVS Health and SCANSOURCE

Assuming the 90 days trading horizon CVS Health is expected to under-perform the SCANSOURCE. In addition to that, CVS Health is 1.29 times more volatile than SCANSOURCE. It trades about -0.56 of its total potential returns per unit of risk. SCANSOURCE is currently generating about -0.09 per unit of volatility. If you would invest  4,920  in SCANSOURCE on September 24, 2024 and sell it today you would lose (200.00) from holding SCANSOURCE or give up 4.07% of portfolio value over 90 days.

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

CVS Health  vs.  SCANSOURCE

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 unsteady 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.

SCANSOURCE

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with CVS Health and SCANSOURCE

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

The idea behind CVS Health and SCANSOURCE 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.