Correlation Between CVS Health and Travelers Companies

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

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

Diversification Opportunities for CVS Health and Travelers Companies

-0.53

Correlation Coefficient

CVS Health  Travelers Companies

Excellent diversification

The 3 months correlation between CVS and Travelers is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies and CVS 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 CVS Health are associated (or correlated) with Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of CVS Health i.e., CVS Health and Travelers Companies go up and down completely randomly.

Pair Corralation between CVS Health and Travelers Companies

Assuming the 90 days trading horizon CVS Health is expected to under-perform the Travelers Companies. But the stock apears to be less risky and, when comparing its historical volatility, CVS Health is 1.08 times less risky than Travelers Companies. The stock trades about -0.13 of its potential returns per unit of risk. The The Travelers Companies is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  463,517  in The Travelers Companies on September 26, 2024 and sell it today you would earn a total of  61,732  from holding The Travelers Companies or generate 13.32% return on investment over 90 days.

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

CVS Health  vs.  The Travelers Companies

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

The Travelers Companies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Travelers Companies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Travelers Companies

The main advantage of trading using opposite CVS Health and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Travelers Companies 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 Travelers Companies will offset losses from the drop in Travelers Companies' long position.

The idea behind CVS Health and The Travelers Companies 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.