Correlation Between Baxter International and CVS Health

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

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

Diversification Opportunities for Baxter International and CVS Health

0.29

Correlation Coefficient

Baxter International  CVS Health

Modest diversification

The 3 months correlation between Baxter and CVS is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Baxter International 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 Baxter International 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 Baxter International 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 Baxter International i.e., Baxter International and CVS Health go up and down completely randomly.

Pair Corralation between Baxter International and CVS Health

Considering the 90-day investment horizon Baxter International is expected to generate 0.77 times more return on investment than CVS Health. However, Baxter International is 1.3 times less risky than CVS Health. It trades about -0.21 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.36 per unit of risk. If you would invest  4,355  in Baxter International on January 31, 2024 and sell it today you would lose (291.00) from holding Baxter International or give up 6.68% of portfolio value over 90 days.

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

Baxter International  vs.  CVS Health Corp

Baxter International

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Baxter International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Baxter International may actually be approaching a critical reversion point that can send shares even higher in May 2024.

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Baxter International and CVS Health

The main advantage of trading using opposite Baxter International and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baxter International 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 Baxter International 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.