Correlation Between CVS Health and Martin Marietta

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

By analyzing existing cross correlation between CVS Health and Martin Marietta Materials, you can compare the effects of market volatilities on CVS Health and Martin Marietta 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 Martin Marietta. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Martin Marietta.

Diversification Opportunities for CVS Health and Martin Marietta

-0.35

Correlation Coefficient

CVS Health  Martin Marietta

Very good diversification

The 3 months correlation between CVS and Martin is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Martin Marietta Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Martin Marietta Materials 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 are associated (or correlated) with Martin Marietta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Martin Marietta Materials has no effect on the direction of CVS Health i.e., CVS Health and Martin Marietta go up and down completely randomly.

Pair Corralation between CVS Health and Martin Marietta

Assuming the 90 days trading horizon CVS Health is expected to under-perform the Martin Marietta. In addition to that, CVS Health is 1.56 times more volatile than Martin Marietta Materials. It trades about -0.07 of its total potential returns per unit of risk. Martin Marietta Materials is currently generating about 0.08 per unit of volatility. If you would invest  656,159  in Martin Marietta Materials on February 11, 2024 and sell it today you would earn a total of  354,350  from holding Martin Marietta Materials or generate 54.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CVS Health  vs.  Martin Marietta Materials

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Martin Marietta Materials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Martin Marietta Materials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Martin Marietta may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with CVS Health and Martin Marietta

The main advantage of trading using opposite CVS Health and Martin Marietta positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Martin Marietta 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 Martin Marietta will offset losses from the drop in Martin Marietta's long position.

The idea behind CVS Health and Martin Marietta Materials 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.