Correlation Between CVS Health and Molina Healthcare

Can any of the company-specific risk be diversified away by investing in both CVS Health and Molina Healthcare 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 Molina Healthcare 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 Molina Healthcare, you can compare the effects of market volatilities on CVS Health and Molina Healthcare 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 Molina Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Molina Healthcare.

Diversification Opportunities for CVS Health and Molina Healthcare

0.72

Correlation Coefficient

CVS Health  Molina Healthcare

Poor diversification

The 3 months correlation between CVS and Molina is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Molina Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Molina Healthcare 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 Molina Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Molina Healthcare has no effect on the direction of CVS Health i.e., CVS Health and Molina Healthcare go up and down completely randomly.

Pair Corralation between CVS Health and Molina Healthcare

Assuming the 90 days horizon CVS Health Corp is expected to under-perform the Molina Healthcare. In addition to that, CVS Health is 1.18 times more volatile than Molina Healthcare. It trades about -0.02 of its total potential returns per unit of risk. Molina Healthcare is currently generating about 0.05 per unit of volatility. If you would invest  26,550  in Molina Healthcare on February 3, 2024 and sell it today you would earn a total of  4,980  from holding Molina Healthcare or generate 18.76% return on investment over 90 days.

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

CVS Health Corp  vs.  Molina Healthcare

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Molina Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Molina Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Molina Healthcare is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CVS Health and Molina Healthcare

The main advantage of trading using opposite CVS Health and Molina Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Molina Healthcare 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 Molina Healthcare will offset losses from the drop in Molina Healthcare's long position.

The idea behind CVS Health Corp and Molina Healthcare 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.