Correlation Between National Bank and CVS Health

Can any of the company-specific risk be diversified away by investing in both National Bank 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 National Bank and CVS Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Bank Holdings and CVS Health Corp, you can compare the effects of market volatilities on National Bank 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 National Bank with a short position of CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and CVS Health.

Diversification Opportunities for National Bank and CVS Health

-0.72

Correlation Coefficient

National Bank  CVS Health

Pay attention - limited upside

The 1 month correlation between National and CVS is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings 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 National Bank 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 National Bank Holdings 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 National Bank i.e., National Bank and CVS Health go up and down completely randomly.

Pair Corralation between National Bank and CVS Health

Assuming the 90 days horizon National Bank Holdings is expected to generate 0.65 times more return on investment than CVS Health. However, National Bank Holdings is 1.55 times less risky than CVS Health. It trades about 0.07 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.17 per unit of risk. If you would invest  3,053  in National Bank Holdings on February 15, 2024 and sell it today you would earn a total of  227.00  from holding National Bank Holdings or generate 7.44% return on investment over 90 days.

Time Period	1 Month [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

National Bank Holdings  vs.  CVS Health Corp

National Bank Holdings

Risk-Adjusted Performance

14 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Bank reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with National Bank and CVS Health

The main advantage of trading using opposite National Bank and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank 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 National Bank Holdings and CVS Health 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.