Correlation Between CVS Health and Molina Healthcare
Can any of the company-specific risk be diversified away by investing in both CVS Health and Molina Healthcare 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 CVS Health and Molina Healthcare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVS Health Corp and Molina Healthcare, you can compare the effects of market volatilities on CVS Health and Molina Healthcare 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 CVS Health with a short position of Molina Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Molina Healthcare.
Diversification Opportunities for CVS Health and Molina Healthcare
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CVS and Molina is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Molina Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Molina Healthcare and CVS Health 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 CVS Health Corp are associated (or correlated) with Molina Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Molina Healthcare has no effect on the direction of CVS Health i.e., CVS Health and Molina Healthcare go up and down completely randomly.
Pair Corralation between CVS Health and Molina Healthcare
Considering the 90-day investment horizon CVS Health Corp is expected to under-perform the Molina Healthcare. In addition to that, CVS Health is 1.08 times more volatile than Molina Healthcare. It trades about -0.36 of its total potential returns per unit of risk. Molina Healthcare is currently generating about -0.34 per unit of volatility. If you would invest 41,844 in Molina Healthcare on January 26, 2024 and sell it today you would lose (5,103) from holding Molina Healthcare or give up 12.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CVS Health Corp vs. Molina Healthcare
Performance |
| Timeline |
| CVS Health Corp |
| Molina Healthcare |
CVS Health and Molina Healthcare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CVS Health and Molina Healthcare
The main advantage of trading using opposite CVS Health and Molina Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Molina Healthcare 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 Molina Healthcare will offset losses from the drop in Molina Healthcare's long position.| CVS Health vs. Humana Inc | CVS Health vs. Cigna Corp | CVS Health vs. Elevance Health | CVS Health vs. Centene Corp |
Check out your portfolio center.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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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