Correlation Between CVS Health and Target
Can any of the company-specific risk be diversified away by investing in both CVS Health and Target 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 Target 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 Target, you can compare the effects of market volatilities on CVS Health and Target 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 Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Target.
Diversification Opportunities for CVS Health and Target
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between CVS and Target is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of CVS Health i.e., CVS Health and Target go up and down completely randomly.
Pair Corralation between CVS Health and Target
Considering the 90-day investment horizon CVS Health Corp is expected to under-perform the Target. But the stock apears to be less risky and, when comparing its historical volatility, CVS Health Corp is 1.52 times less risky than Target. The stock trades about -0.14 of its potential returns per unit of risk. The Target is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 15,148 in Target on January 24, 2024 and sell it today you would earn a total of 1,563 from holding Target or generate 10.32% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 97.62% |
Values | Daily Returns |
CVS Health Corp vs. Target
Performance |
Timeline |
CVS Health Corp |
Target |
CVS Health and Target Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with CVS Health and Target
The main advantage of trading using opposite CVS Health and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Target 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 Target will offset losses from the drop in Target's long position.CVS Health vs. Humana Inc | CVS Health vs. Cigna Corp | CVS Health vs. Elevance Health | CVS Health vs. Centene Corp |
Target vs. Big Lots | Target vs. Aquagold International | Target vs. Thrivent High Yield | Target vs. Morningstar Unconstrained Allocation |
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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