Correlation Between Prudential Financial and CVS Health

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

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

Diversification Opportunities for Prudential Financial and CVS Health

-0.42

Correlation Coefficient

Prudential Financial  CVS Health

Very good diversification

The 3 months correlation between Prudential and CVS is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Prudential Financial 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 Prudential Financial 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 Prudential Financial i.e., Prudential Financial and CVS Health go up and down completely randomly.

Pair Corralation between Prudential Financial and CVS Health

Assuming the 90 days trading horizon Prudential Financial is expected to generate 0.58 times more return on investment than CVS Health. However, Prudential Financial is 1.71 times less risky than CVS Health. It trades about 0.07 of its potential returns per unit of risk. CVS Health is currently generating about -0.04 per unit of risk. If you would invest  32,664  in Prudential Financial on September 30, 2024 and sell it today you would earn a total of  4,373  from holding Prudential Financial or generate 13.39% return on investment over 90 days.

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

Prudential Financial  vs.  CVS Health

Prudential Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Prudential Financial sustained 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. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Prudential Financial and CVS Health

The main advantage of trading using opposite Prudential Financial and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Financial 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 Prudential Financial 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.