Correlation Between Exxon and CVS HEALTH

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Can any of the company-specific risk be diversified away by investing in both Exxon 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 Exxon and CVS HEALTH into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EXXON MOBIL CDR and CVS HEALTH CDR, you can compare the effects of market volatilities on Exxon 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 Exxon with a short position of CVS HEALTH. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and CVS HEALTH.

Diversification Opportunities for Exxon and CVS HEALTH

0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Exxon and CVS is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding EXXON MOBIL CDR and CVS HEALTH CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS HEALTH CDR and Exxon 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 EXXON MOBIL CDR 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 CDR has no effect on the direction of Exxon i.e., Exxon and CVS HEALTH go up and down completely randomly.

Pair Corralation between Exxon and CVS HEALTH

Assuming the 90 days trading horizon Exxon is expected to generate 1.75 times less return on investment than CVS HEALTH. But when comparing it to its historical volatility, EXXON MOBIL CDR is 1.88 times less risky than CVS HEALTH. It trades about 0.04 of its potential returns per unit of risk. CVS HEALTH CDR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,419  in CVS HEALTH CDR on September 3, 2024 and sell it today you would earn a total of  59.00  from holding CVS HEALTH CDR or generate 4.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

EXXON MOBIL CDR  vs.  CVS HEALTH CDR

 Performance 
       Timeline  
EXXON MOBIL CDR 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in EXXON MOBIL CDR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
CVS HEALTH CDR 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in CVS HEALTH CDR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, CVS HEALTH is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Exxon and CVS HEALTH Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Exxon and CVS HEALTH

The main advantage of trading using opposite Exxon and CVS HEALTH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 EXXON MOBIL CDR and CVS HEALTH CDR 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.

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