Correlation Between UnitedHealth Group and CVS Health

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

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

Diversification Opportunities for UnitedHealth Group and CVS Health

-0.35

Correlation Coefficient

UnitedHealth Group  CVS Health

Very good diversification

The 3 months correlation between UnitedHealth and CVS is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding UnitedHealth Group Incorporate 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 UnitedHealth Group 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 UnitedHealth Group Incorporated 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 UnitedHealth Group i.e., UnitedHealth Group and CVS Health go up and down completely randomly.

Pair Corralation between UnitedHealth Group and CVS Health

Considering the 90-day investment horizon UnitedHealth Group is expected to generate 14.63 times less return on investment than CVS Health. But when comparing it to its historical volatility, UnitedHealth Group Incorporated is 1.37 times less risky than CVS Health. It trades about 0.03 of its potential returns per unit of risk. CVS Health Corp is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  4,339  in CVS Health Corp on December 29, 2024 and sell it today you would earn a total of  2,375  from holding CVS Health Corp or generate 54.74% return on investment over 90 days.

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

UnitedHealth Group Incorporate  vs.  CVS Health Corp

UnitedHealth Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UnitedHealth Group Incorporated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, UnitedHealth Group is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

CVS Health Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, CVS Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UnitedHealth Group and CVS Health

The main advantage of trading using opposite UnitedHealth Group and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UnitedHealth Group 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 UnitedHealth Group Incorporated 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 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.