Correlation Between Sealed Air and CVS Health

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

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

Diversification Opportunities for Sealed Air and CVS Health

0.04

Correlation Coefficient

Sealed Air  CVS Health

Significant diversification

The 3 months correlation between Sealed and CVS is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sealed Air Corp 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 Sealed Air 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 Sealed Air Corp 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 Sealed Air i.e., Sealed Air and CVS Health go up and down completely randomly.

Pair Corralation between Sealed Air and CVS Health

Assuming the 90 days trading horizon Sealed Air Corp is expected to generate 0.95 times more return on investment than CVS Health. However, Sealed Air Corp is 1.05 times less risky than CVS Health. It trades about 0.03 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.05 per unit of risk. If you would invest  3,053  in Sealed Air Corp on September 24, 2024 and sell it today you would earn a total of  363.00  from holding Sealed Air Corp or generate 11.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.84%
Values	Daily Returns

Sealed Air Corp  vs.  CVS Health Corp

Sealed Air Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sealed Air Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Sealed Air 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 Sealed Air and CVS Health

The main advantage of trading using opposite Sealed Air and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sealed Air 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 Sealed Air Corp 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.