Correlation Between American Airlines and CVS Health
Can any of the company-specific risk be diversified away by investing in both American Airlines 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 American Airlines and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Airlines Group and CVS Health Corp, you can compare the effects of market volatilities on American Airlines 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 American Airlines with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and CVS Health.
Diversification Opportunities for American Airlines and CVS Health
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between American and CVS is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group 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 American Airlines 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 American Airlines Group 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 American Airlines i.e., American Airlines and CVS Health go up and down completely randomly.
Pair Corralation between American Airlines and CVS Health
Considering the 90-day investment horizon American Airlines Group is expected to generate 1.27 times more return on investment than CVS Health. However, American Airlines is 1.27 times more volatile than CVS Health Corp. It trades about -0.17 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.3 per unit of risk. If you would invest 1,411 in American Airlines Group on January 17, 2024 and sell it today you would lose (117.00) from holding American Airlines Group or give up 8.29% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Airlines Group vs. CVS Health Corp
Performance |
| Timeline |
| American Airlines |
| CVS Health Corp |
American Airlines and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and CVS Health
The main advantage of trading using opposite American Airlines and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines 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.| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
| CVS Health vs. Humana Inc | CVS Health vs. Cigna Corp | CVS Health vs. Elevance Health | CVS Health vs. Centene Corp |
Check out your portfolio center.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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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