Correlation Between IShares SPTSX and CVS Health

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

By analyzing existing cross correlation between iShares SPTSX 60 and CVS Health Corp, you can compare the effects of market volatilities on IShares SPTSX 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 IShares SPTSX with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SPTSX and CVS Health.

Diversification Opportunities for IShares SPTSX and CVS Health

-0.09

Correlation Coefficient

IShares SPTSX  CVS Health

Good diversification

The 3 months correlation between IShares and CVS is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX 60 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 IShares SPTSX 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 iShares SPTSX 60 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 IShares SPTSX i.e., IShares SPTSX and CVS Health go up and down completely randomly.

Pair Corralation between IShares SPTSX and CVS Health

Assuming the 90 days trading horizon iShares SPTSX 60 is expected to generate 0.16 times more return on investment than CVS Health. However, iShares SPTSX 60 is 6.39 times less risky than CVS Health. It trades about -0.02 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.32 per unit of risk. If you would invest  3,347  in iShares SPTSX 60 on February 4, 2024 and sell it today you would lose (9.00) from holding iShares SPTSX 60 or give up 0.27% of portfolio value over 90 days.

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

iShares SPTSX 60  vs.  CVS Health Corp

iShares SPTSX 60

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX 60 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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 unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with IShares SPTSX and CVS Health

The main advantage of trading using opposite IShares SPTSX and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SPTSX 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 iShares SPTSX 60 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.