Correlation Between CVS Health and Barclays PLC

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

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

Diversification Opportunities for CVS Health and Barclays PLC

0.56

Correlation Coefficient

CVS Health  Barclays PLC

Very weak diversification

The 3 months correlation between CVS and Barclays is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Barclays PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barclays PLC 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 Barclays PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barclays PLC has no effect on the direction of CVS Health i.e., CVS Health and Barclays PLC go up and down completely randomly.

Pair Corralation between CVS Health and Barclays PLC

Assuming the 90 days trading horizon CVS Health is expected to generate 0.85 times more return on investment than Barclays PLC. However, CVS Health is 1.18 times less risky than Barclays PLC. It trades about 0.22 of its potential returns per unit of risk. Barclays PLC is currently generating about 0.06 per unit of risk. If you would invest  2,732  in CVS Health on December 24, 2024 and sell it today you would earn a total of  1,145  from holding CVS Health or generate 41.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

CVS Health  vs.  Barclays PLC

CVS Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 17 (%) 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.

Barclays PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barclays PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Barclays PLC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Barclays PLC

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

The idea behind CVS Health and Barclays PLC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.