Correlation Between Target Healthcare and CVS Health

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

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

Diversification Opportunities for Target Healthcare and CVS Health

0.36

Correlation Coefficient

Target Healthcare  CVS Health

Weak diversification

The 3 months correlation between Target and CVS is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Target Healthcare REIT and CVS Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health Corp and Target Healthcare 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 Target Healthcare REIT 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 Corp has no effect on the direction of Target Healthcare i.e., Target Healthcare and CVS Health go up and down completely randomly.

Pair Corralation between Target Healthcare and CVS Health

Assuming the 90 days trading horizon Target Healthcare REIT is expected to generate 0.51 times more return on investment than CVS Health. However, Target Healthcare REIT is 1.98 times less risky than CVS Health. It trades about -0.09 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.43 per unit of risk. If you would invest  8,430  in Target Healthcare REIT on September 21, 2024 and sell it today you would lose (210.00) from holding Target Healthcare REIT or give up 2.49% of portfolio value over 90 days.

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

Target Healthcare REIT  vs.  CVS Health Corp

Target Healthcare REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target Healthcare REIT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Target Healthcare and CVS Health

The main advantage of trading using opposite Target Healthcare and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Healthcare 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 Target Healthcare REIT and CVS Health Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.