Correlation Between CVS Health and UnitedHealth Group

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

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

Diversification Opportunities for CVS Health and UnitedHealth Group

0.35

Correlation Coefficient

CVS Health  UnitedHealth Group

Weak diversification

The 3 months correlation between CVS and UnitedHealth is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and UnitedHealth Group Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UnitedHealth Group 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 UnitedHealth Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UnitedHealth Group has no effect on the direction of CVS Health i.e., CVS Health and UnitedHealth Group go up and down completely randomly.

Pair Corralation between CVS Health and UnitedHealth Group

Assuming the 90 days trading horizon CVS Health is expected to under-perform the UnitedHealth Group. In addition to that, CVS Health is 1.4 times more volatile than UnitedHealth Group Incorporated. It trades about -0.04 of its total potential returns per unit of risk. UnitedHealth Group Incorporated is currently generating about -0.01 per unit of volatility. If you would invest  4,530  in UnitedHealth Group Incorporated on September 17, 2024 and sell it today you would lose (118.00) from holding UnitedHealth Group Incorporated or give up 2.6% of portfolio value over 90 days.

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

CVS Health  vs.  UnitedHealth Group Incorporate

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 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.

UnitedHealth Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind CVS Health and UnitedHealth Group Incorporated 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.