Correlation Between CVS Corp and Home Depot

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

Diversification Opportunities for CVS Corp and Home Depot

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between CVS Corp and Home Depot is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding CVS Corp and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and CVS Corp 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 Corp are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of CVS Corp i.e., CVS Corp and Home Depot go up and down completely randomly.

Pair Corralation between CVS Corp and Home Depot

Considering the 90-day investment horizon CVS Corp is expected to generate 1.02 times more return on investment than Home Depot. However, CVS Corp is 1.02 times more volatile than Home Depot. It trades about 0.07 of its potential returns per unit of risk. Home Depot is currently generating about 0.02 per unit of risk. If you would invest  6,175  in CVS Corp on May 9, 2022 and sell it today you would earn a total of  4,051  from holding CVS Corp or generate 65.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

CVS Corp  vs.  Home Depot

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

CVS Corp Price Channel

Home Depot 
Home Depot Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Home Depot Price Channel

CVS Corp and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CVS Corp and Home Depot

The main advantage of trading using opposite CVS Corp and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Corp position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.
The idea behind CVS Corp and Home Depot 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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