Correlation Between CVS Health and Charter Communications

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

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

Diversification Opportunities for CVS Health and Charter Communications

-0.19

Correlation Coefficient

CVS Health  Charter Communications

Good diversification

The 3 months correlation between CVS and Charter is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of CVS Health i.e., CVS Health and Charter Communications go up and down completely randomly.

Pair Corralation between CVS Health and Charter Communications

Assuming the 90 days trading horizon CVS Health is expected to generate 1.39 times more return on investment than Charter Communications. However, CVS Health is 1.39 times more volatile than Charter Communications. It trades about 0.23 of its potential returns per unit of risk. Charter Communications is currently generating about -0.04 per unit of risk. If you would invest  2,688  in CVS Health on December 22, 2024 and sell it today you would earn a total of  1,189  from holding CVS Health or generate 44.23% return on investment over 90 days.

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

CVS Health  vs.  Charter Communications

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 uncertain basic indicators, CVS Health sustained solid returns over the last few months and may actually be approaching a breakup point.

Charter Communications

Risk-Adjusted Performance

Very Weak

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

Pair Trading with CVS Health and Charter Communications

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

The idea behind CVS Health and Charter Communications 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.