Correlation Between KRISPY KREME and CVS Health

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

By analyzing existing cross correlation between KRISPY KREME DL 01 and CVS Health, you can compare the effects of market volatilities on KRISPY KREME 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 KRISPY KREME with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of KRISPY KREME and CVS Health.

Diversification Opportunities for KRISPY KREME and CVS Health

-0.4

Correlation Coefficient

KRISPY KREME  CVS Health

Very good diversification

The 3 months correlation between KRISPY and CVS is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding KRISPY KREME DL 01 and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and KRISPY KREME 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 KRISPY KREME DL 01 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 has no effect on the direction of KRISPY KREME i.e., KRISPY KREME and CVS Health go up and down completely randomly.

Pair Corralation between KRISPY KREME and CVS Health

Assuming the 90 days horizon KRISPY KREME is expected to generate 2.34 times less return on investment than CVS Health. But when comparing it to its historical volatility, KRISPY KREME DL 01 is 1.11 times less risky than CVS Health. It trades about 0.03 of its potential returns per unit of risk. CVS Health is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,125  in CVS Health on September 2, 2024 and sell it today you would earn a total of  530.00  from holding CVS Health or generate 10.34% return on investment over 90 days.

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

KRISPY KREME DL 01  vs.  CVS Health

KRISPY KREME DL

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KRISPY KREME DL 01 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, KRISPY KREME is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

CVS Health

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with KRISPY KREME and CVS Health

The main advantage of trading using opposite KRISPY KREME and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KRISPY KREME 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 KRISPY KREME DL 01 and CVS Health 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.