Correlation Between CVS Health and Caterpillar
Can any of the company-specific risk be diversified away by investing in both CVS Health and Caterpillar 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 Caterpillar 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 Caterpillar, you can compare the effects of market volatilities on CVS Health and Caterpillar 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 Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Caterpillar.
Diversification Opportunities for CVS Health and Caterpillar
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between CVS and Caterpillar is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar 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 Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of CVS Health i.e., CVS Health and Caterpillar go up and down completely randomly.
Pair Corralation between CVS Health and Caterpillar
Considering the 90-day investment horizon CVS Health Corp is expected to under-perform the Caterpillar. In addition to that, CVS Health is 1.33 times more volatile than Caterpillar. It trades about -0.28 of its total potential returns per unit of risk. Caterpillar is currently generating about 0.04 per unit of volatility. If you would invest 35,390 in Caterpillar on January 19, 2024 and sell it today you would earn a total of 403.00 from holding Caterpillar or generate 1.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CVS Health Corp vs. Caterpillar
Performance |
| Timeline |
| CVS Health Corp |
| Caterpillar |
CVS Health and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CVS Health and Caterpillar
The main advantage of trading using opposite CVS Health and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Caterpillar 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 Caterpillar will offset losses from the drop in Caterpillar's long position.| CVS Health vs. Humana Inc | CVS Health vs. Cigna Corp | CVS Health vs. Elevance Health | CVS Health vs. Centene Corp |
| Caterpillar vs. AGCO Corporation | Caterpillar vs. CNH Industrial NV | Caterpillar vs. NikolaCorp | Caterpillar vs. PACCAR Inc |
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 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.
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