Correlation Between Vulcan Materials and CVS Health

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

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

Diversification Opportunities for Vulcan Materials and CVS Health

-0.39

Correlation Coefficient

Vulcan Materials  CVS Health

Very good diversification

The 3 months correlation between Vulcan and CVS is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials i.e., Vulcan Materials and CVS Health go up and down completely randomly.

Pair Corralation between Vulcan Materials and CVS Health

Assuming the 90 days trading horizon Vulcan Materials is expected to generate 0.36 times more return on investment than CVS Health. However, Vulcan Materials is 2.76 times less risky than CVS Health. It trades about -0.28 of its potential returns per unit of risk. CVS Health is currently generating about -0.33 per unit of risk. If you would invest  2,871  in Vulcan Materials on October 6, 2024 and sell it today you would lose (178.00) from holding Vulcan Materials or give up 6.2% of portfolio value over 90 days.

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

Vulcan Materials  vs.  CVS Health

Vulcan Materials

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Vulcan Materials 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 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 Vulcan Materials and CVS Health

The main advantage of trading using opposite Vulcan Materials and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Materials 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 Vulcan Materials 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.