Correlation Between CVS Health and Telecomunicaes Brasileiras

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

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

Diversification Opportunities for CVS Health and Telecomunicaes Brasileiras

0.19

Correlation Coefficient

CVS Health  Telecomunicaes Brasileiras

Average diversification

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

Pair Corralation between CVS Health and Telecomunicaes Brasileiras

Assuming the 90 days trading horizon CVS Health is expected to generate 0.97 times more return on investment than Telecomunicaes Brasileiras. However, CVS Health is 1.03 times less risky than Telecomunicaes Brasileiras. It trades about 0.06 of its potential returns per unit of risk. Telecomunicaes Brasileiras SA is currently generating about -0.01 per unit of risk. If you would invest  3,506  in CVS Health on December 1, 2024 and sell it today you would earn a total of  341.00  from holding CVS Health or generate 9.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

CVS Health  vs.  Telecomunicaes Brasileiras SA

CVS Health

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 4 (%) 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.

Telecomunicaes Brasileiras

Risk-Adjusted Performance

Very Weak

Over the last 90 days Telecomunicaes Brasileiras SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Telecomunicaes Brasileiras is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CVS Health and Telecomunicaes Brasileiras

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

The idea behind CVS Health and Telecomunicaes Brasileiras SA 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 Transaction History module to view history of all your transactions and understand their impact on performance.