Correlation Between CVS Health and Align Technology

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

By analyzing existing cross correlation between CVS Health and Align Technology, you can compare the effects of market volatilities on CVS Health and Align Technology 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 Align Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Align Technology.

Diversification Opportunities for CVS Health and Align Technology

-0.84

Correlation Coefficient

CVS Health  Align Technology

Pay attention - limited upside

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

Pair Corralation between CVS Health and Align Technology

Assuming the 90 days trading horizon CVS Health is expected to generate 1.51 times more return on investment than Align Technology. However, CVS Health is 1.51 times more volatile than Align Technology. It trades about 0.23 of its potential returns per unit of risk. Align Technology is currently generating about -0.26 per unit of risk. If you would invest  2,662  in CVS Health on December 28, 2024 and sell it today you would earn a total of  1,234  from holding CVS Health or generate 46.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

CVS Health  vs.  Align Technology

CVS Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CVS Health sustained solid returns over the last few months and may actually be approaching a breakup point.

Align Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Align Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with CVS Health and Align Technology

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

The idea behind CVS Health and Align Technology 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.