Correlation Between CVS Health and Anthem

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

Diversification Opportunities for CVS Health and Anthem

-0.53
  Correlation Coefficient

Excellent diversification

The 3 months correlation between CVS and Anthem is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Anthem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anthem Inc and CVS Health 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 CVS Health Corp are associated (or correlated) with Anthem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anthem Inc has no effect on the direction of CVS Health i.e., CVS Health and Anthem go up and down completely randomly.

Pair Corralation between CVS Health and Anthem

Considering the 90-day investment horizon CVS Health Corp is expected to generate 0.91 times more return on investment than Anthem. However, CVS Health Corp is 1.1 times less risky than Anthem. It trades about -0.02 of its potential returns per unit of risk. Anthem Inc is currently generating about -0.05 per unit of risk. If you would invest  9,858  in CVS Health Corp on December 30, 2023 and sell it today you would lose (1,882) from holding CVS Health Corp or give up 19.09% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy10.93%
ValuesDaily Returns

CVS Health Corp  vs.  Anthem Inc

 Performance 
       Timeline  
CVS Health Corp 

Risk-Adjusted Performance

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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 comparatively stable basic indicators, CVS Health is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.
Anthem Inc 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days Anthem Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Anthem is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

CVS Health and Anthem Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CVS Health and Anthem

The main advantage of trading using opposite CVS Health and Anthem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Anthem 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 Anthem will offset losses from the drop in Anthem's long position.
The idea behind CVS Health Corp and Anthem Inc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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