Correlation Between Waste Management and CVS Health

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

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

Diversification Opportunities for Waste Management and CVS Health

0.1

Correlation Coefficient

Waste Management  CVS Health

Average diversification

The 3 months correlation between Waste and CVS is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Waste Management 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 Waste Management 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 Waste Management i.e., Waste Management and CVS Health go up and down completely randomly.

Pair Corralation between Waste Management and CVS Health

Assuming the 90 days trading horizon Waste Management is expected to under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, Waste Management is 2.09 times less risky than CVS Health. The stock trades about -0.13 of its potential returns per unit of risk. The CVS Health is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  5,117  in CVS Health on September 13, 2024 and sell it today you would lose (135.00) from holding CVS Health or give up 2.64% of portfolio value over 90 days.

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

Waste Management  vs.  CVS Health

Waste Management

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Waste Management may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CVS Health

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, CVS Health is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Waste Management and CVS Health

The main advantage of trading using opposite Waste Management and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waste Management 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 Waste Management 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.