Correlation Between CVS Health and VTv Therapeutics

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

Diversification Opportunities for CVS Health and VTv Therapeutics

0.68

Correlation Coefficient

CVS Health  VTv Therapeutics

Poor diversification

The 3 months correlation between CVS and VTv is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and vTv Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on vTv Therapeutics 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 VTv Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of vTv Therapeutics has no effect on the direction of CVS Health i.e., CVS Health and VTv Therapeutics go up and down completely randomly.

Pair Corralation between CVS Health and VTv Therapeutics

Considering the 90-day investment horizon CVS Health Corp is expected to generate 0.31 times more return on investment than VTv Therapeutics. However, CVS Health Corp is 3.28 times less risky than VTv Therapeutics. It trades about 0.27 of its potential returns per unit of risk. vTv Therapeutics is currently generating about 0.08 per unit of risk. If you would invest  4,436  in CVS Health Corp on December 26, 2024 and sell it today you would earn a total of  2,212  from holding CVS Health Corp or generate 49.86% 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.  vTv Therapeutics

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 21 (%) 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.

vTv Therapeutics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in vTv Therapeutics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, VTv Therapeutics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and VTv Therapeutics

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

The idea behind CVS Health Corp and vTv Therapeutics 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.