Correlation Between CVS Health and Centene Corp

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

Diversification Opportunities for CVS Health and Centene Corp

0.63

Correlation Coefficient

CVS Health  Centene Corp

Poor diversification

The 3 months correlation between CVS and Centene is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Centene Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centene Corp 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 Centene Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centene Corp has no effect on the direction of CVS Health i.e., CVS Health and Centene Corp go up and down completely randomly.

Pair Corralation between CVS Health and Centene Corp

Considering the 90-day investment horizon CVS Health Corp is expected to under-perform the Centene Corp. But the stock apears to be less risky and, when comparing its historical volatility, CVS Health Corp is 1.03 times less risky than Centene Corp. The stock trades about -0.36 of its potential returns per unit of risk. The Centene Corp is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  7,775  in Centene Corp on January 31, 2024 and sell it today you would lose (469.00) from holding Centene Corp or give up 6.03% of portfolio value over 90 days.

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

CVS Health Corp  vs.  Centene Corp

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. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Centene Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centene Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Centene Corp is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CVS Health and Centene Corp

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

The idea behind CVS Health Corp and Centene Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.