Correlation Between CVS HEALTH and Meta Platforms

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

By analyzing existing cross correlation between CVS HEALTH CDR and Meta Platforms CDR, you can compare the effects of market volatilities on CVS HEALTH and Meta Platforms 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 Meta Platforms. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS HEALTH and Meta Platforms.

Diversification Opportunities for CVS HEALTH and Meta Platforms

-0.32

Correlation Coefficient

CVS HEALTH  Meta Platforms

Very good diversification

The 3 months correlation between CVS and Meta is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding CVS HEALTH CDR and Meta Platforms CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms CDR 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 CDR are associated (or correlated) with Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms CDR has no effect on the direction of CVS HEALTH i.e., CVS HEALTH and Meta Platforms go up and down completely randomly.

Pair Corralation between CVS HEALTH and Meta Platforms

Assuming the 90 days trading horizon CVS HEALTH CDR is expected to under-perform the Meta Platforms. In addition to that, CVS HEALTH is 1.57 times more volatile than Meta Platforms CDR. It trades about -0.44 of its total potential returns per unit of risk. Meta Platforms CDR is currently generating about 0.13 per unit of volatility. If you would invest  3,102  in Meta Platforms CDR on September 23, 2024 and sell it today you would earn a total of  147.00  from holding Meta Platforms CDR or generate 4.74% return on investment over 90 days.

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

CVS HEALTH CDR  vs.  Meta Platforms CDR

CVS HEALTH CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Meta Platforms CDR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms CDR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Meta Platforms is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CVS HEALTH and Meta Platforms

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

The idea behind CVS HEALTH CDR and Meta Platforms CDR 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.