Correlation Between CVS Health and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both CVS Health and Alcoa Corp 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 Alcoa Corp 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 Alcoa Corp, you can compare the effects of market volatilities on CVS Health and Alcoa Corp 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 Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Alcoa Corp.
Diversification Opportunities for CVS Health and Alcoa Corp
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between CVS and Alcoa is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp 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 Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of CVS Health i.e., CVS Health and Alcoa Corp go up and down completely randomly.
Pair Corralation between CVS Health and Alcoa Corp
Considering the 90-day investment horizon CVS Health Corp is expected to generate 0.47 times more return on investment than Alcoa Corp. However, CVS Health Corp is 2.15 times less risky than Alcoa Corp. It trades about 0.0 of its potential returns per unit of risk. Alcoa Corp is currently generating about -0.03 per unit of risk. If you would invest 8,330 in CVS Health Corp on December 29, 2023 and sell it today you would lose (387.00) from holding CVS Health Corp or give up 4.65% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
CVS Health Corp vs. Alcoa Corp
Performance |
Timeline |
CVS Health Corp |
Alcoa Corp |
CVS Health and Alcoa Corp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with CVS Health and Alcoa Corp
The main advantage of trading using opposite CVS Health and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Alcoa Corp 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 Alcoa Corp will offset losses from the drop in Alcoa Corp's long position.CVS Health vs. Edwards Lifesciences Corp | CVS Health vs. Spectral AI | CVS Health vs. Microbot Medical | CVS Health vs. Medigus Ltd ADR |
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Check out your portfolio center.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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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