Correlation Between Walgreens Boots and CVS Health

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

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

Diversification Opportunities for Walgreens Boots and CVS Health

0.17

Correlation Coefficient

Walgreens Boots  CVS Health

Average diversification

The 3 months correlation between Walgreens and CVS is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Walgreens Boots 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 Walgreens Boots Alliance 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 Walgreens Boots i.e., Walgreens Boots and CVS Health go up and down completely randomly.

Pair Corralation between Walgreens Boots and CVS Health

Assuming the 90 days horizon Walgreens Boots is expected to generate 2.07 times less return on investment than CVS Health. In addition to that, Walgreens Boots is 1.95 times more volatile than CVS Health. It trades about 0.06 of its total potential returns per unit of risk. CVS Health is currently generating about 0.24 per unit of volatility. If you would invest  4,223  in CVS Health on December 29, 2024 and sell it today you would earn a total of  1,953  from holding CVS Health or generate 46.25% return on investment over 90 days.

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

Walgreens Boots Alliance  vs.  CVS Health

Walgreens Boots Alliance

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Walgreens Boots Alliance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Walgreens Boots reported solid returns over the last few months and may actually be approaching a breakup point.

CVS Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CVS Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walgreens Boots and CVS Health

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