Correlation Between Virgin Wines and CVS Health

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

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

Diversification Opportunities for Virgin Wines and CVS Health

0.76

Correlation Coefficient

Virgin Wines  CVS Health

Poor diversification

The 3 months correlation between Virgin and CVS is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Virgin Wines UK 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 Virgin Wines 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 Virgin Wines UK 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 Virgin Wines i.e., Virgin Wines and CVS Health go up and down completely randomly.

Pair Corralation between Virgin Wines and CVS Health

Assuming the 90 days trading horizon Virgin Wines is expected to generate 1.19 times less return on investment than CVS Health. In addition to that, Virgin Wines is 1.05 times more volatile than CVS Health Corp. It trades about 0.21 of its total potential returns per unit of risk. CVS Health Corp is currently generating about 0.26 per unit of volatility. If you would invest  4,348  in CVS Health Corp on December 30, 2024 and sell it today you would earn a total of  2,393  from holding CVS Health Corp or generate 55.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.92%
Values	Daily Returns

Virgin Wines UK  vs.  CVS Health Corp

Virgin Wines UK

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Virgin Wines UK are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Virgin Wines unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, CVS Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Virgin Wines and CVS Health

The main advantage of trading using opposite Virgin Wines and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Virgin Wines 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 Virgin Wines UK 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.