Correlation Between CVS Health and Universal Health

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

Diversification Opportunities for CVS Health and Universal Health

0.16

Correlation Coefficient

CVS Health  Universal Health

Average diversification

The 3 months correlation between CVS and Universal is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Universal Health Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Health Services 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 Universal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Health Services has no effect on the direction of CVS Health i.e., CVS Health and Universal Health go up and down completely randomly.

Pair Corralation between CVS Health and Universal Health

Assuming the 90 days trading horizon CVS Health Corp is expected to generate 1.3 times more return on investment than Universal Health. However, CVS Health is 1.3 times more volatile than Universal Health Services. It trades about 0.0 of its potential returns per unit of risk. Universal Health Services is currently generating about -0.13 per unit of risk. If you would invest  5,694  in CVS Health Corp on September 12, 2024 and sell it today you would lose (170.00) from holding CVS Health Corp or give up 2.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

CVS Health Corp  vs.  Universal Health Services

CVS Health Corp

Risk-Adjusted Performance

0 of 100

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

Universal Health Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Health Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with CVS Health and Universal Health

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

The idea behind CVS Health Corp and Universal Health Services 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.