Correlation Between Pennant and CVS Health

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

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

Diversification Opportunities for Pennant and CVS Health

0.85

Correlation Coefficient

Pennant  CVS Health

Very poor diversification

The 3 months correlation between Pennant and CVS is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Pennant Group 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 Pennant 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 Pennant Group 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 Pennant i.e., Pennant and CVS Health go up and down completely randomly.

Pair Corralation between Pennant and CVS Health

Given the investment horizon of 90 days Pennant Group is expected to generate 0.51 times more return on investment than CVS Health. However, Pennant Group is 1.96 times less risky than CVS Health. It trades about -0.44 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.36 per unit of risk. If you would invest  3,001  in Pennant Group on October 8, 2024 and sell it today you would lose (347.00) from holding Pennant Group or give up 11.56% of portfolio value over 90 days.

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

Pennant Group  vs.  CVS Health Corp

Pennant Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pennant Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Pennant and CVS Health

The main advantage of trading using opposite Pennant and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pennant 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 Pennant Group 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.