Correlation Between Chevron Corp and CVS Health

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

By analyzing existing cross correlation between Chevron Corp and CVS Health Corp, you can compare the effects of market volatilities on Chevron Corp 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 Chevron Corp with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and CVS Health.

Diversification Opportunities for Chevron Corp and CVS Health

0.01

Correlation Coefficient

Chevron Corp  CVS Health

Significant diversification

The 3 months correlation between Chevron and CVS is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp 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 Chevron Corp 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 Chevron Corp 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 Chevron Corp i.e., Chevron Corp and CVS Health go up and down completely randomly.

Pair Corralation between Chevron Corp and CVS Health

Considering the 90-day investment horizon Chevron Corp is expected to generate 0.42 times more return on investment than CVS Health. However, Chevron Corp is 2.38 times less risky than CVS Health. It trades about 0.04 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.3 per unit of risk. If you would invest  15,541  in Chevron Corp on January 18, 2024 and sell it today you would earn a total of  99.00  from holding Chevron Corp or generate 0.64% return on investment over 90 days.

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

Chevron Corp  vs.  CVS Health Corp

Chevron Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chevron Corp may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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.

Pair Trading with Chevron Corp and CVS Health

The main advantage of trading using opposite Chevron Corp and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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 Chevron Corp 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.