Correlation Between Clover Health and CVS Corp

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

Diversification Opportunities for Clover Health and CVS Corp

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Clover and CVS Corp is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Clover Health Investments and CVS Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Corp and Clover 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 Clover Health Investments are associated (or correlated) with CVS Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Corp has no effect on the direction of Clover Health i.e., Clover Health and CVS Corp go up and down completely randomly.

Pair Corralation between Clover Health and CVS Corp

Given the investment horizon of 90 days Clover Health Investments is expected to generate 3.42 times more return on investment than CVS Corp. However, Clover Health is 3.42 times more volatile than CVS Corp. It trades about 0.2 of its potential returns per unit of risk. CVS Corp is currently generating about 0.25 per unit of risk. If you would invest  223.00  in Clover Health Investments on May 16, 2022 and sell it today you would earn a total of  107.00  from holding Clover Health Investments or generate 47.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Clover Health Investments  vs.  CVS Corp

 Performance (%) 
       Timeline  
Clover Health Investments 
Clover Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Clover Health Investments are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Clover Health showed solid returns over the last few months and may actually be approaching a breakup point.

Clover Price Channel

CVS Corp 
CVS Corp Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in CVS Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively sluggish basic indicators, CVS Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

CVS Corp Price Channel

Clover Health and CVS Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Clover Health and CVS Corp

The main advantage of trading using opposite Clover Health and CVS Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Clover Health position performs unexpectedly, CVS 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 CVS Corp will offset losses from the drop in CVS Corp's long position.
The idea behind Clover Health Investments and CVS 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.
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 Stock Screener module to find equities using custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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