Correlation Between CVS Health and Biogen

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

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

Diversification Opportunities for CVS Health and Biogen

-0.7

Correlation Coefficient

CVS Health  Biogen

Excellent diversification

The 3 months correlation between CVS and Biogen is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Biogen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biogen Inc 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 Biogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biogen Inc has no effect on the direction of CVS Health i.e., CVS Health and Biogen go up and down completely randomly.

Pair Corralation between CVS Health and Biogen

Assuming the 90 days trading horizon CVS Health is expected to generate 1.71 times more return on investment than Biogen. However, CVS Health is 1.71 times more volatile than Biogen Inc. It trades about 0.26 of its potential returns per unit of risk. Biogen Inc is currently generating about -0.07 per unit of risk. If you would invest  88,465  in CVS Health on December 20, 2024 and sell it today you would earn a total of  47,435  from holding CVS Health or generate 53.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

CVS Health  vs.  Biogen Inc

CVS Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, CVS Health showed solid returns over the last few months and may actually be approaching a breakup point.

Biogen Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Biogen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with CVS Health and Biogen

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

The idea behind CVS Health and Biogen Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.