Correlation Between National HealthCare and CVS Health

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

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

Diversification Opportunities for National HealthCare and CVS Health

0.61

Correlation Coefficient

National HealthCare  CVS Health

Poor diversification

The 3 months correlation between National and CVS is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding National HealthCare and CVS Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health Corp and National HealthCare 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 National HealthCare 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 Corp has no effect on the direction of National HealthCare i.e., National HealthCare and CVS Health go up and down completely randomly.

Pair Corralation between National HealthCare and CVS Health

Considering the 90-day investment horizon National HealthCare is expected to under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, National HealthCare is 1.63 times less risky than CVS Health. The stock trades about -0.46 of its potential returns per unit of risk. The CVS Health Corp is currently generating about 0.46 of returns per unit of risk over similar time horizon. If you would invest  4,414  in CVS Health Corp on October 23, 2024 and sell it today you would earn a total of  848.00  from holding CVS Health Corp or generate 19.21% return on investment over 90 days.

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

National HealthCare  vs.  CVS Health Corp

National HealthCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National HealthCare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with National HealthCare and CVS Health

The main advantage of trading using opposite National HealthCare and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National HealthCare 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 National HealthCare and CVS Health Corp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.