Correlation Between DXC Technology and CVS Health

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

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

Diversification Opportunities for DXC Technology and CVS Health

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Correlation Coefficient

DXC Technology  CVS Health

Pay attention - limited upside

The 3 months correlation between DXC and CVS is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding DXC Technology and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and DXC Technology 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 DXC Technology 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 DXC Technology i.e., DXC Technology and CVS Health go up and down completely randomly.

Pair Corralation between DXC Technology and CVS Health

Assuming the 90 days trading horizon DXC Technology is expected to generate 0.55 times more return on investment than CVS Health. However, DXC Technology is 1.83 times less risky than CVS Health. It trades about -0.07 of its potential returns per unit of risk. CVS Health is currently generating about -0.05 per unit of risk. If you would invest  57,066  in DXC Technology on September 27, 2024 and sell it today you would lose (21,066) from holding DXC Technology or give up 36.92% of portfolio value over 90 days.

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

DXC Technology  vs.  CVS Health

DXC Technology

Risk-Adjusted Performance

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Very Weak

Over the last 90 days DXC Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, DXC Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with DXC Technology and CVS Health

The main advantage of trading using opposite DXC Technology and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DXC Technology 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 DXC Technology 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.