Correlation Between Alaska Air and CVS Health

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

Diversification Opportunities for Alaska Air and CVS Health

0.03

Correlation Coefficient

Alaska Air  CVS Health

Significant diversification

The 3 months correlation between Alaska and CVS is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Alaska 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 Alaska Air Group 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 Alaska Air i.e., Alaska Air and CVS Health go up and down completely randomly.

Pair Corralation between Alaska Air and CVS Health

Assuming the 90 days trading horizon Alaska Air Group is expected to generate 0.98 times more return on investment than CVS Health. However, Alaska Air Group is 1.02 times less risky than CVS Health. It trades about 0.29 of its potential returns per unit of risk. CVS Health is currently generating about 0.03 per unit of risk. If you would invest  3,622  in Alaska Air Group on September 12, 2024 and sell it today you would earn a total of  2,200  from holding Alaska Air Group or generate 60.74% return on investment over 90 days.

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

Alaska Air Group  vs.  CVS Health

Alaska Air Group

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alaska Air unveiled solid returns over the last few months and may actually be approaching a breakup point.

CVS Health

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, CVS Health is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alaska Air and CVS Health

The main advantage of trading using opposite Alaska Air and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alaska 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 Alaska Air Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.