Correlation Between CVS Health and Phillips

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

By analyzing existing cross correlation between CVS Health and Phillips 66, you can compare the effects of market volatilities on CVS Health and Phillips 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 Phillips. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Phillips.

Diversification Opportunities for CVS Health and Phillips

0.59

Correlation Coefficient

CVS Health  Phillips

Very weak diversification

The 3 months correlation between CVS and Phillips is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Phillips 66 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phillips 66 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 Phillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phillips 66 has no effect on the direction of CVS Health i.e., CVS Health and Phillips go up and down completely randomly.

Pair Corralation between CVS Health and Phillips

Assuming the 90 days trading horizon CVS Health is expected to under-perform the Phillips. In addition to that, CVS Health is 2.1 times more volatile than Phillips 66. It trades about -0.45 of its total potential returns per unit of risk. Phillips 66 is currently generating about -0.53 per unit of volatility. If you would invest  39,840  in Phillips 66 on October 4, 2024 and sell it today you would lose (5,772) from holding Phillips 66 or give up 14.49% of portfolio value over 90 days.

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

CVS Health  vs.  Phillips 66

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.

Phillips 66

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phillips 66 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with CVS Health and Phillips

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

The idea behind CVS Health and Phillips 66 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.