Correlation Between Mitsui Chemicals and CVS Health

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

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

Diversification Opportunities for Mitsui Chemicals and CVS Health

0.62

Correlation Coefficient

Mitsui Chemicals  CVS Health

Poor diversification

The 3 months correlation between Mitsui and CVS is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Mitsui Chemicals and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Mitsui Chemicals 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 Mitsui Chemicals 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 Mitsui Chemicals i.e., Mitsui Chemicals and CVS Health go up and down completely randomly.

Pair Corralation between Mitsui Chemicals and CVS Health

Assuming the 90 days trading horizon Mitsui Chemicals is expected to generate 8.88 times less return on investment than CVS Health. But when comparing it to its historical volatility, Mitsui Chemicals is 2.15 times less risky than CVS Health. It trades about 0.06 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  4,223  in CVS Health on December 30, 2024 and sell it today you would earn a total of  1,953  from holding CVS Health or generate 46.25% return on investment over 90 days.

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

Mitsui Chemicals  vs.  CVS Health

Mitsui Chemicals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsui Chemicals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Mitsui Chemicals is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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. In spite of rather fragile basic indicators, CVS Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mitsui Chemicals and CVS Health

The main advantage of trading using opposite Mitsui Chemicals and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mitsui Chemicals 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 Mitsui Chemicals 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.