Correlation Between CVS Health and Pennant

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

Diversification Opportunities for CVS Health and Pennant

0.84

Correlation Coefficient

CVS Health  Pennant

Very poor diversification

The 3 months correlation between CVS and Pennant is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Pennant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pennant Group 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 Pennant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pennant Group has no effect on the direction of CVS Health i.e., CVS Health and Pennant go up and down completely randomly.

Pair Corralation between CVS Health and Pennant

Considering the 90-day investment horizon CVS Health Corp is expected to generate 1.04 times more return on investment than Pennant. However, CVS Health is 1.04 times more volatile than Pennant Group. It trades about 0.46 of its potential returns per unit of risk. Pennant Group is currently generating about 0.07 per unit of risk. If you would invest  4,414  in CVS Health Corp on October 23, 2024 and sell it today you would earn a total of  848.00  from holding CVS Health Corp or generate 19.21% return on investment over 90 days.

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

CVS Health Corp  vs.  Pennant Group

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CVS Health is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pennant Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pennant Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with CVS Health and Pennant

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

The idea behind CVS Health Corp and Pennant Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.