Correlation Between CVS Health and Ford

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

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

Diversification Opportunities for CVS Health and Ford

-0.67

Correlation Coefficient

CVS Health  Ford

Excellent diversification

The 3 months correlation between CVS and Ford is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor 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 Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of CVS Health i.e., CVS Health and Ford go up and down completely randomly.

Pair Corralation between CVS Health and Ford

Assuming the 90 days trading horizon CVS Health is expected to generate 1.19 times more return on investment than Ford. However, CVS Health is 1.19 times more volatile than Ford Motor. It trades about 0.23 of its potential returns per unit of risk. Ford Motor is currently generating about -0.02 per unit of risk. If you would invest  2,688  in CVS Health on December 23, 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	Weak
Accuracy	98.33%
Values	Daily Returns

CVS Health  vs.  Ford Motor

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.

Ford Motor

Risk-Adjusted Performance

Very Weak

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

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

The idea behind CVS Health and Ford Motor 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.