Correlation Between Phillips and CVS Health

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

By analyzing existing cross correlation between Phillips 66 and CVS Health, you can compare the effects of market volatilities on Phillips 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 Phillips with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Phillips and CVS Health.

Diversification Opportunities for Phillips and CVS Health

0.59

Correlation Coefficient

Phillips  CVS Health

Very weak diversification

The 3 months correlation between Phillips and CVS is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Phillips 66 and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Phillips 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 Phillips 66 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 Phillips i.e., Phillips and CVS Health go up and down completely randomly.

Pair Corralation between Phillips and CVS Health

Assuming the 90 days trading horizon Phillips 66 is expected to generate 0.48 times more return on investment than CVS Health. However, Phillips 66 is 2.1 times less risky than CVS Health. It trades about -0.53 of its potential returns per unit of risk. CVS Health is currently generating about -0.45 per unit of risk. If you would invest  39,840  in Phillips 66 on October 4, 2024 and sell it today you would lose (5,772) from holding Phillips 66 or give up 14.49% of portfolio value over 90 days.

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

Phillips 66  vs.  CVS Health

Phillips 66

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phillips 66 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Phillips and CVS Health

The main advantage of trading using opposite Phillips and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Phillips 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 Phillips 66 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.