Correlation Between CVS Health and MetLife

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

Diversification Opportunities for CVS Health and MetLife

0.29

Correlation Coefficient

CVS Health  MetLife

Modest diversification

The 3 months correlation between CVS and MetLife is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife 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 MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of CVS Health i.e., CVS Health and MetLife go up and down completely randomly.

Pair Corralation between CVS Health and MetLife

Considering the 90-day investment horizon CVS Health Corp is expected to under-perform the MetLife. In addition to that, CVS Health is 2.03 times more volatile than MetLife. It trades about -0.32 of its total potential returns per unit of risk. MetLife is currently generating about -0.06 per unit of volatility. If you would invest  7,310  in MetLife on January 24, 2024 and sell it today you would lose (88.00) from holding MetLife or give up 1.2% of portfolio value over 90 days.

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

CVS Health Corp  vs.  MetLife

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 latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

MetLife

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, MetLife 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 CVS Health and MetLife

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

The idea behind CVS Health Corp and MetLife 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.