Correlation Between CVS Health and Amazon

Can any of the company-specific risk be diversified away by investing in both CVS Health and Amazon 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 Amazon 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 Amazon Inc, you can compare the effects of market volatilities on CVS Health and Amazon 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 Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Amazon.

Diversification Opportunities for CVS Health and Amazon

-0.12

Correlation Coefficient

CVS Health  Amazon

Good diversification

The 3 months correlation between CVS and Amazon is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of CVS Health i.e., CVS Health and Amazon go up and down completely randomly.

Pair Corralation between CVS Health and Amazon

Considering the 90-day investment horizon CVS Health Corp is expected to under-perform the Amazon. In addition to that, CVS Health is 1.44 times more volatile than Amazon Inc. It trades about -0.36 of its total potential returns per unit of risk. Amazon Inc is currently generating about -0.03 per unit of volatility. If you would invest  17,830  in Amazon Inc on January 26, 2024 and sell it today you would lose (171.00) from holding Amazon Inc or give up 0.96% of portfolio value over 90 days.

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

CVS Health Corp  vs.  Amazon Inc

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 comparatively stable basic indicators, CVS Health is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Amazon Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Amazon may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with CVS Health and Amazon

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

The idea behind CVS Health Corp and Amazon Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.