Correlation Between North American and CVS HEALTH

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

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

Diversification Opportunities for North American and CVS HEALTH

-0.54

Correlation Coefficient

North American  CVS HEALTH

Excellent diversification

The 3 months correlation between North and CVS is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and CVS HEALTH CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS HEALTH CDR and North American 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 North American Construction 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 CDR has no effect on the direction of North American i.e., North American and CVS HEALTH go up and down completely randomly.

Pair Corralation between North American and CVS HEALTH

Assuming the 90 days trading horizon North American Construction is expected to generate 0.57 times more return on investment than CVS HEALTH. However, North American Construction is 1.76 times less risky than CVS HEALTH. It trades about 0.22 of its potential returns per unit of risk. CVS HEALTH CDR is currently generating about -0.34 per unit of risk. If you would invest  2,735  in North American Construction on September 20, 2024 and sell it today you would earn a total of  205.00  from holding North American Construction or generate 7.5% return on investment over 90 days.

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

North American Construction  vs.  CVS HEALTH CDR

North American Const

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

CVS HEALTH CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with North American and CVS HEALTH

The main advantage of trading using opposite North American and CVS HEALTH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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 North American Construction and CVS HEALTH CDR 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.