Correlation Between CVS HEALTH and Data Communications

Can any of the company-specific risk be diversified away by investing in both CVS HEALTH and Data Communications 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 Data Communications 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 Data Communications Management, you can compare the effects of market volatilities on CVS HEALTH and Data Communications 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 Data Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS HEALTH and Data Communications.

Diversification Opportunities for CVS HEALTH and Data Communications

-0.44

Correlation Coefficient

CVS HEALTH  Data Communications

Very good diversification

The 3 months correlation between CVS and Data is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding CVS HEALTH CDR and Data Communications Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data Communications 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 Data Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data Communications has no effect on the direction of CVS HEALTH i.e., CVS HEALTH and Data Communications go up and down completely randomly.

Pair Corralation between CVS HEALTH and Data Communications

Assuming the 90 days trading horizon CVS HEALTH CDR is expected to generate 0.79 times more return on investment than Data Communications. However, CVS HEALTH CDR is 1.26 times less risky than Data Communications. It trades about 0.27 of its potential returns per unit of risk. Data Communications Management is currently generating about -0.06 per unit of risk. If you would invest  1,094  in CVS HEALTH CDR on December 26, 2024 and sell it today you would earn a total of  548.00  from holding CVS HEALTH CDR or generate 50.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

CVS HEALTH CDR  vs.  Data Communications Management

CVS HEALTH CDR

Risk-Adjusted Performance

Solid

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

Data Communications

Risk-Adjusted Performance

Very Weak

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

Pair Trading with CVS HEALTH and Data Communications

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

The idea behind CVS HEALTH CDR and Data Communications Management 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.