Correlation Between CVS Health and FIBRA Storage

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

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

Diversification Opportunities for CVS Health and FIBRA Storage

0.64

Correlation Coefficient

CVS Health  FIBRA Storage

Poor diversification

The 3 months correlation between CVS and FIBRA is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and FIBRA Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIBRA Storage 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 FIBRA Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FIBRA Storage has no effect on the direction of CVS Health i.e., CVS Health and FIBRA Storage go up and down completely randomly.

Pair Corralation between CVS Health and FIBRA Storage

Assuming the 90 days trading horizon CVS Health is expected to generate 2.27 times more return on investment than FIBRA Storage. However, CVS Health is 2.27 times more volatile than FIBRA Storage. It trades about 0.24 of its potential returns per unit of risk. FIBRA Storage is currently generating about 0.18 per unit of risk. If you would invest  89,469  in CVS Health on December 30, 2024 and sell it today you would earn a total of  47,131  from holding CVS Health or generate 52.68% return on investment over 90 days.

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

CVS Health  vs.  FIBRA Storage

CVS Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 19 (%) 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.

FIBRA Storage

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FIBRA Storage are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, FIBRA Storage exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and FIBRA Storage

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

The idea behind CVS Health and FIBRA Storage 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.