Correlation Between CVS Health and ON SEMICONDUCTOR

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

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

Diversification Opportunities for CVS Health and ON SEMICONDUCTOR

0.27

Correlation Coefficient

CVS Health  ON SEMICONDUCTOR

Modest diversification

The 3 months correlation between CVS and XS4 is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and ON SEMICONDUCTOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON SEMICONDUCTOR 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 ON SEMICONDUCTOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ON SEMICONDUCTOR has no effect on the direction of CVS Health i.e., CVS Health and ON SEMICONDUCTOR go up and down completely randomly.

Pair Corralation between CVS Health and ON SEMICONDUCTOR

Assuming the 90 days trading horizon CVS Health is expected to generate 1.0 times less return on investment than ON SEMICONDUCTOR. In addition to that, CVS Health is 1.22 times more volatile than ON SEMICONDUCTOR. It trades about 0.07 of its total potential returns per unit of risk. ON SEMICONDUCTOR is currently generating about 0.08 per unit of volatility. If you would invest  6,329  in ON SEMICONDUCTOR on September 5, 2024 and sell it today you would earn a total of  687.00  from holding ON SEMICONDUCTOR or generate 10.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

CVS Health  vs.  ON SEMICONDUCTOR

CVS Health

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ON SEMICONDUCTOR

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with CVS Health and ON SEMICONDUCTOR

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

The idea behind CVS Health and ON SEMICONDUCTOR 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.