Correlation Between Centene Corp and CVS Health

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

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

Diversification Opportunities for Centene Corp and CVS Health

0.3

Correlation Coefficient

Centene Corp  CVS Health

Weak diversification

The 3 months correlation between Centene and CVS is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Centene 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 Centene Corp 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 Centene 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 Centene Corp i.e., Centene Corp and CVS Health go up and down completely randomly.

Pair Corralation between Centene Corp and CVS Health

Considering the 90-day investment horizon Centene Corp is expected to under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, Centene Corp is 1.06 times less risky than CVS Health. The stock trades about -0.18 of its potential returns per unit of risk. The CVS Health Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,675  in CVS Health Corp on September 1, 2024 and sell it today you would earn a total of  310.00  from holding CVS Health Corp or generate 5.46% return on investment over 90 days.

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

Centene Corp  vs.  CVS Health Corp

Centene Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centene Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

CVS Health Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Centene Corp and CVS Health

The main advantage of trading using opposite Centene Corp and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Centene Corp 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 Centene 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.