Correlation Between CVS HEALTH and Advanced Micro

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

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

Diversification Opportunities for CVS HEALTH and Advanced Micro

0.78

Correlation Coefficient

CVS HEALTH  Advanced Micro

Poor diversification

The 3 months correlation between CVS and Advanced is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding CVS HEALTH CDR and Advanced Micro Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Micro Devices 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 CDR are associated (or correlated) with Advanced Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Micro Devices has no effect on the direction of CVS HEALTH i.e., CVS HEALTH and Advanced Micro go up and down completely randomly.

Pair Corralation between CVS HEALTH and Advanced Micro

Assuming the 90 days trading horizon CVS HEALTH CDR is expected to generate 1.14 times more return on investment than Advanced Micro. However, CVS HEALTH is 1.14 times more volatile than Advanced Micro Devices. It trades about -0.04 of its potential returns per unit of risk. Advanced Micro Devices is currently generating about -0.15 per unit of risk. If you would invest  1,453  in CVS HEALTH CDR on October 20, 2024 and sell it today you would lose (145.00) from holding CVS HEALTH CDR or give up 9.98% of portfolio value over 90 days.

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

CVS HEALTH CDR  vs.  Advanced Micro Devices

CVS HEALTH CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Advanced Micro Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Micro Devices has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with CVS HEALTH and Advanced Micro

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

The idea behind CVS HEALTH CDR and Advanced Micro Devices 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .