Correlation Between United Airlines and CVS Health

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

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

Diversification Opportunities for United Airlines and CVS Health

0.05

Correlation Coefficient

United Airlines  CVS Health

Significant diversification

The 3 months correlation between United and CVS is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and United Airlines 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 United Airlines Holdings 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 United Airlines i.e., United Airlines and CVS Health go up and down completely randomly.

Pair Corralation between United Airlines and CVS Health

Assuming the 90 days trading horizon United Airlines Holdings is expected to generate 0.99 times more return on investment than CVS Health. However, United Airlines Holdings is 1.01 times less risky than CVS Health. It trades about 0.38 of its potential returns per unit of risk. CVS Health is currently generating about -0.03 per unit of risk. If you would invest  14,100  in United Airlines Holdings on September 16, 2024 and sell it today you would earn a total of  14,808  from holding United Airlines Holdings or generate 105.02% return on investment over 90 days.

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

United Airlines Holdings  vs.  CVS Health

United Airlines Holdings

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, United Airlines 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 somewhat strong basic indicators, CVS Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Airlines and CVS Health

The main advantage of trading using opposite United Airlines and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Airlines 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 United Airlines Holdings 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.