Correlation Between CVS Health and General Electric

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

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

Diversification Opportunities for CVS Health and General Electric

0.54

Correlation Coefficient

CVS Health  General Electric

Very weak diversification

The 3 months correlation between CVS and General is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and General Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Electric 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 General Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Electric has no effect on the direction of CVS Health i.e., CVS Health and General Electric go up and down completely randomly.

Pair Corralation between CVS Health and General Electric

Assuming the 90 days trading horizon CVS Health is expected to under-perform the General Electric. In addition to that, CVS Health is 1.62 times more volatile than General Electric. It trades about -0.31 of its total potential returns per unit of risk. General Electric is currently generating about 0.01 per unit of volatility. If you would invest  104,469  in General Electric on September 26, 2024 and sell it today you would earn a total of  82.00  from holding General Electric or generate 0.08% return on investment over 90 days.

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

CVS Health  vs.  General Electric

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. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

General Electric

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, General Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CVS Health and General Electric

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

The idea behind CVS Health and General Electric 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.