Correlation Between CVS Health and Amazon

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

Diversification Opportunities for CVS Health and Amazon

-0.02
  Correlation Coefficient

Good diversification

The 3 months correlation between CVS Health and Amazon is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health Corp and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of CVS Health i.e., CVS Health and Amazon go up and down completely randomly.

Pair Corralation between CVS Health and Amazon

Considering the 90-day investment horizon CVS Health Corp is expected to generate 0.61 times more return on investment than Amazon. However, CVS Health Corp is 1.64 times less risky than Amazon. It trades about 0.07 of its potential returns per unit of risk. Amazon Inc is currently generating about -0.03 per unit of risk. If you would invest  6,650  in CVS Health Corp on September 3, 2022 and sell it today you would earn a total of  3,570  from holding CVS Health Corp or generate 53.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

CVS Health Corp  vs.  Amazon Inc

 Performance (%) 
       Timeline  
CVS Health Corp 
CVS Health Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, CVS Health is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

CVS Health Price Channel

Amazon Inc 
Amazon Performance
0 of 100
Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2023. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Amazon Price Channel

CVS Health and Amazon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CVS Health and Amazon

The main advantage of trading using opposite CVS Health and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.
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The idea behind CVS Health Corp and Amazon 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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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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