Correlation Between CVS Health and International Business

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

Diversification Opportunities for CVS Health and International Business

0.78

Correlation Coefficient

CVS Health  International Business

Poor diversification

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

Pair Corralation between CVS Health and International Business

Considering the 90-day investment horizon CVS Health Corp is expected to generate 1.16 times more return on investment than International Business. However, CVS Health is 1.16 times more volatile than International Business Machines. It trades about 0.29 of its potential returns per unit of risk. International Business Machines is currently generating about 0.09 per unit of risk. If you would invest  4,339  in CVS Health Corp on December 30, 2024 and sell it today you would earn a total of  2,375  from holding CVS Health Corp or generate 54.74% return on investment over 90 days.

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

CVS Health Corp  vs.  International Business Machine

CVS Health Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, CVS Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

International Business

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental drivers, International Business may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with CVS Health and International Business

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

The idea behind CVS Health Corp and International Business Machines 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.