Correlation Between CVS Health and Seven West

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

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

Diversification Opportunities for CVS Health and Seven West

0.36

Correlation Coefficient

CVS Health  Seven West

Weak diversification

The 3 months correlation between CVS and Seven is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Seven West Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seven West Media 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 Corp are associated (or correlated) with Seven West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seven West Media has no effect on the direction of CVS Health i.e., CVS Health and Seven West go up and down completely randomly.

Pair Corralation between CVS Health and Seven West

Assuming the 90 days horizon CVS Health Corp is expected to under-perform the Seven West. But the stock apears to be less risky and, when comparing its historical volatility, CVS Health Corp is 1.13 times less risky than Seven West. The stock trades about -0.19 of its potential returns per unit of risk. The Seven West Media is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  8.55  in Seven West Media on September 15, 2024 and sell it today you would lose (0.90) from holding Seven West Media or give up 10.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

CVS Health Corp  vs.  Seven West Media

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Seven West Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seven West Media has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with CVS Health and Seven West

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

The idea behind CVS Health Corp and Seven West Media 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.