Correlation Between CVS Health and ConocoPhillips

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

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

Diversification Opportunities for CVS Health and ConocoPhillips

0.37

Correlation Coefficient

CVS Health  ConocoPhillips

Weak diversification

The 3 months correlation between CVS and ConocoPhillips is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and ConocoPhillips in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConocoPhillips 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 ConocoPhillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConocoPhillips has no effect on the direction of CVS Health i.e., CVS Health and ConocoPhillips go up and down completely randomly.

Pair Corralation between CVS Health and ConocoPhillips

Assuming the 90 days trading horizon CVS Health is expected to under-perform the ConocoPhillips. In addition to that, CVS Health is 2.12 times more volatile than ConocoPhillips. It trades about -0.06 of its total potential returns per unit of risk. ConocoPhillips is currently generating about 0.0 per unit of volatility. If you would invest  5,283  in ConocoPhillips on October 6, 2024 and sell it today you would lose (30.00) from holding ConocoPhillips or give up 0.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.44%
Values	Daily Returns

CVS Health  vs.  ConocoPhillips

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ConocoPhillips

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ConocoPhillips has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ConocoPhillips 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 ConocoPhillips

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

The idea behind CVS Health and ConocoPhillips 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.