Correlation Between Home Depot and CVS Corp

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

Diversification Opportunities for Home Depot and CVS Corp

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Home Depot and CVS Corp is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and CVS Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Corp and Home Depot 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 Home Depot 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 Home Depot i.e., Home Depot and CVS Corp go up and down completely randomly.

Pair Corralation between Home Depot and CVS Corp

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the CVS Corp. In addition to that, Home Depot is 1.91 times more volatile than CVS Corp. It trades about -0.07 of its total potential returns per unit of risk. CVS Corp is currently generating about -0.02 per unit of volatility. If you would invest  9,880  in CVS Corp on July 1, 2022 and sell it today you would lose (64.00)  from holding CVS Corp or give up 0.65% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Home Depot  vs.  CVS Corp

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 1 (%) 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 
CVS Corp Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in CVS Corp are ranked lower than 4 (%) 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 latest stock price agitation, may contribute to short-term losses for the retail investors.

CVS Corp Price Channel

Home Depot and CVS Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and CVS Corp

The main advantage of trading using opposite Home Depot and CVS Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot 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.
Home Depot vs. Amazon Inc
The idea behind Home Depot 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.
CVS Corp vs. Amazon Inc
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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