Correlation Between InterContinental and CVS Health

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

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

Diversification Opportunities for InterContinental and CVS Health

-0.44

Correlation Coefficient

InterContinental  CVS Health

Very good diversification

The 3 months correlation between InterContinental and CVS is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and InterContinental 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 InterContinental Hotels Group are associated (or correlated) with CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health has no effect on the direction of InterContinental i.e., InterContinental and CVS Health go up and down completely randomly.

Pair Corralation between InterContinental and CVS Health

Assuming the 90 days trading horizon InterContinental is expected to generate 5.83 times less return on investment than CVS Health. But when comparing it to its historical volatility, InterContinental Hotels Group is 1.79 times less risky than CVS Health. It trades about 0.18 of its potential returns per unit of risk. CVS Health is currently generating about 0.59 of returns per unit of risk over similar time horizon. If you would invest  4,228  in CVS Health on October 22, 2024 and sell it today you would earn a total of  899.00  from holding CVS Health or generate 21.26% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  CVS Health

InterContinental Hotels

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of rather sound basic indicators, CVS Health is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with InterContinental and CVS Health

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

The idea behind InterContinental Hotels Group and CVS Health 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.