Correlation Between 3M and CVS Health

Can any of the company-specific risk be diversified away by investing in both 3M 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 3M and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M Company and CVS Health, you can compare the effects of market volatilities on 3M 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 3M with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and CVS Health.

Diversification Opportunities for 3M and CVS Health

0.51

Correlation Coefficient

3M  CVS Health

Very weak diversification

The 3 months correlation between 3M and CVS is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and 3M 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 3M Company 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 3M i.e., 3M and CVS Health go up and down completely randomly.

Pair Corralation between 3M and CVS Health

Assuming the 90 days trading horizon 3M is expected to generate 4.44 times less return on investment than CVS Health. But when comparing it to its historical volatility, 3M Company is 1.55 times less risky than CVS Health. It trades about 0.08 of its potential returns per unit of risk. CVS Health is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  2,688  in CVS Health on December 21, 2024 and sell it today you would earn a total of  1,189  from holding CVS Health or generate 44.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

3M Company  vs.  CVS Health

3M Company

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, 3M may actually be approaching a critical reversion point that can send shares even higher in April 2025.

CVS Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, CVS Health sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and CVS Health

The main advantage of trading using opposite 3M and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M 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 3M Company 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.