Correlation Between Walmart and CVS Health

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

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

Diversification Opportunities for Walmart and CVS Health

-0.46

Correlation Coefficient

Walmart  CVS Health

Very good diversification

The 3 months correlation between Walmart and CVS is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health and Walmart 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 Walmart 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 Walmart i.e., Walmart and CVS Health go up and down completely randomly.

Pair Corralation between Walmart and CVS Health

Assuming the 90 days trading horizon Walmart is expected to generate 0.57 times more return on investment than CVS Health. However, Walmart is 1.75 times less risky than CVS Health. It trades about 0.25 of its potential returns per unit of risk. CVS Health is currently generating about -0.03 per unit of risk. If you would invest  123,374  in Walmart on September 27, 2024 and sell it today you would earn a total of  63,456  from holding Walmart or generate 51.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

Walmart  vs.  CVS Health

Walmart

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Walmart showed solid returns over the last few months and may actually be approaching a breakup point.

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 Walmart and CVS Health

The main advantage of trading using opposite Walmart and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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 Walmart 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 Transaction History module to view history of all your transactions and understand their impact on performance.