Correlation Between International Business and CVS Health

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

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

Diversification Opportunities for International Business and CVS Health

0.76

Correlation Coefficient

International Business  CVS Health

Poor diversification

The 3 months correlation between International and CVS is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine 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 International Business 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 International Business Machines 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 International Business i.e., International Business and CVS Health go up and down completely randomly.

Pair Corralation between International Business and CVS Health

Considering the 90-day investment horizon International Business Machines is expected to generate 0.73 times more return on investment than CVS Health. However, International Business Machines is 1.37 times less risky than CVS Health. It trades about 0.08 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.06 per unit of risk. If you would invest  14,505  in International Business Machines on February 6, 2024 and sell it today you would earn a total of  2,066  from holding International Business Machines or generate 14.24% return on investment over 90 days.

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

International Business Machine  vs.  CVS Health Corp

International Business

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm 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 International Business and CVS Health

The main advantage of trading using opposite International Business and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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 International Business Machines 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..