Correlation Between Cardinal Health and CVS Health

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

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

Diversification Opportunities for Cardinal Health and CVS Health

-0.29

Correlation Coefficient

Cardinal Health  CVS Health

Very good diversification

The 3 months correlation between Cardinal and CVS is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Health 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 Cardinal 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 Cardinal Health 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 Cardinal Health i.e., Cardinal Health and CVS Health go up and down completely randomly.

Pair Corralation between Cardinal Health and CVS Health

Assuming the 90 days trading horizon Cardinal Health is expected to generate 0.51 times more return on investment than CVS Health. However, Cardinal Health is 1.95 times less risky than CVS Health. It trades about 0.06 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.12 per unit of risk. If you would invest  11,107  in Cardinal Health on September 21, 2024 and sell it today you would earn a total of  594.00  from holding Cardinal Health or generate 5.35% return on investment over 90 days.

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

Cardinal Health  vs.  CVS Health Corp

Cardinal Health

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cardinal Health is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private 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 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 Cardinal Health and CVS Health

The main advantage of trading using opposite Cardinal Health and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cardinal Health 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 Cardinal Health 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.