Correlation Between CVS Health and Liberty Broadband

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

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

Diversification Opportunities for CVS Health and Liberty Broadband

-0.12

Correlation Coefficient

CVS Health  Liberty Broadband

Good diversification

The 3 months correlation between CVS and Liberty is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Liberty Broadband in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Broadband 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 Liberty Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Broadband has no effect on the direction of CVS Health i.e., CVS Health and Liberty Broadband go up and down completely randomly.

Pair Corralation between CVS Health and Liberty Broadband

Assuming the 90 days trading horizon CVS Health is expected to generate 1.55 times more return on investment than Liberty Broadband. However, CVS Health is 1.55 times more volatile than Liberty Broadband. It trades about -0.06 of its potential returns per unit of risk. Liberty Broadband is currently generating about -0.11 per unit of risk. If you would invest  3,175  in CVS Health on October 6, 2024 and sell it today you would lose (349.00) from holding CVS Health or give up 10.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CVS Health  vs.  Liberty Broadband

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.

Liberty Broadband

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Broadband are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Liberty Broadband sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Liberty Broadband

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

The idea behind CVS Health and Liberty Broadband 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.