Correlation Between Industrial Select and CVS Health

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Can any of the company-specific risk be diversified away by investing in both Industrial Select 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 Industrial Select and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Industrial Select Sector and CVS Health Corp, you can compare the effects of market volatilities on Industrial Select 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 Industrial Select with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and CVS Health.

Diversification Opportunities for Industrial Select and CVS Health

0.06
  Correlation Coefficient

Significant diversification

The 3 months correlation between Industrial and CVS is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector 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 Industrial Select 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 Industrial Select Sector 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 Industrial Select i.e., Industrial Select and CVS Health go up and down completely randomly.

Pair Corralation between Industrial Select and CVS Health

Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.54 times more return on investment than CVS Health. However, Industrial Select Sector is 1.84 times less risky than CVS Health. It trades about 0.12 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  9,969  in Industrial Select Sector on December 29, 2023 and sell it today you would earn a total of  2,625  from holding Industrial Select Sector or generate 26.33% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Industrial Select Sector  vs.  CVS Health Corp

 Performance 
       Timeline  
Industrial Select Sector 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Select Sector are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal essential indicators, Industrial Select may actually be approaching a critical reversion point that can send shares even higher in April 2024.
CVS Health Corp 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, CVS Health is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Industrial Select and CVS Health Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Industrial Select and CVS Health

The main advantage of trading using opposite Industrial Select and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select 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 Industrial Select Sector 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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