Correlation Between CVS Health and Biotech Growth

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

Diversification Opportunities for CVS Health and Biotech Growth

-0.09

Correlation Coefficient

CVS Health  Biotech Growth

Good diversification

The 3 months correlation between CVS and Biotech is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and The Biotech Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotech Growth 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 Biotech Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotech Growth has no effect on the direction of CVS Health i.e., CVS Health and Biotech Growth go up and down completely randomly.

Pair Corralation between CVS Health and Biotech Growth

Assuming the 90 days trading horizon CVS Health Corp is expected to generate 1.08 times more return on investment than Biotech Growth. However, CVS Health is 1.08 times more volatile than The Biotech Growth. It trades about 0.1 of its potential returns per unit of risk. The Biotech Growth is currently generating about 0.01 per unit of risk. If you would invest  6,445  in CVS Health Corp on April 11, 2025 and sell it today you would earn a total of  173.00  from holding CVS Health Corp or generate 2.68% return on investment over 90 days.

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

CVS Health Corp  vs.  The Biotech Growth

CVS Health Corp

Risk-Adjusted Performance

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Biotech Growth

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Biotech Growth are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Biotech Growth unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Biotech Growth

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

The idea behind CVS Health Corp and The Biotech Growth 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.