Correlation Between CVS Health and Capital One

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

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

Diversification Opportunities for CVS Health and Capital One

0.03

Correlation Coefficient

CVS Health  Capital One

Significant diversification

The 3 months correlation between CVS and Capital is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial 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 Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of CVS Health i.e., CVS Health and Capital One go up and down completely randomly.

Pair Corralation between CVS Health and Capital One

Assuming the 90 days trading horizon CVS Health is expected to under-perform the Capital One. In addition to that, CVS Health is 1.13 times more volatile than Capital One Financial. It trades about -0.03 of its total potential returns per unit of risk. Capital One Financial is currently generating about 0.1 per unit of volatility. If you would invest  23,150  in Capital One Financial on September 17, 2024 and sell it today you would earn a total of  33,622  from holding Capital One Financial or generate 145.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.56%
Values	Daily Returns

CVS Health  vs.  Capital One Financial

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CVS Health is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Capital One Financial

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Capital One sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Capital One

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

The idea behind CVS Health and Capital One Financial 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.