Correlation Between First Majestic and CVS Health

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

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

Diversification Opportunities for First Majestic and CVS Health

0.11

Correlation Coefficient

First Majestic  CVS Health

Average diversification

The 3 months correlation between First and CVS is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding First Majestic Silver and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and First Majestic 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 First Majestic Silver 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 First Majestic i.e., First Majestic and CVS Health go up and down completely randomly.

Pair Corralation between First Majestic and CVS Health

Assuming the 90 days horizon First Majestic Silver is expected to generate 0.36 times more return on investment than CVS Health. However, First Majestic Silver is 2.82 times less risky than CVS Health. It trades about -0.14 of its potential returns per unit of risk. CVS Health is currently generating about -0.14 per unit of risk. If you would invest  49,266  in First Majestic Silver on September 13, 2024 and sell it today you would lose (1,182) from holding First Majestic Silver or give up 2.4% of portfolio value over 90 days.

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

First Majestic Silver  vs.  CVS Health

First Majestic Silver

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with First Majestic and CVS Health

The main advantage of trading using opposite First Majestic and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Majestic 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 First Majestic Silver 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.