Correlation Between Sector 10 and CVS Health
Can any of the company-specific risk be diversified away by investing in both Sector 10 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 Sector 10 and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sector 10 and CVS Health Corp, you can compare the effects of market volatilities on Sector 10 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 Sector 10 with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sector 10 and CVS Health.
Diversification Opportunities for Sector 10 and CVS Health
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Sector and CVS is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Sector 10 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 Sector 10 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 Sector 10 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 Sector 10 i.e., Sector 10 and CVS Health go up and down completely randomly.
Pair Corralation between Sector 10 and CVS Health
Given the investment horizon of 90 days Sector 10 is expected to generate 33.4 times more return on investment than CVS Health. However, Sector 10 is 33.4 times more volatile than CVS Health Corp. It trades about 0.04 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.03 per unit of risk. If you would invest 1.29 in Sector 10 on January 18, 2024 and sell it today you would lose (1.28) from holding Sector 10 or give up 99.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 73.94% |
| Values | Daily Returns |
Sector 10 vs. CVS Health Corp
Performance |
| Timeline |
| Sector 10 |
| CVS Health Corp |
Sector 10 and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sector 10 and CVS Health
The main advantage of trading using opposite Sector 10 and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sector 10 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.| Sector 10 vs. The Ensign Group | Sector 10 vs. Select Medical Holdings | Sector 10 vs. Encompass Health Corp | Sector 10 vs. Enhabit |
| 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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