CVS Health Corp. (NYSE:CVS)

Capital Asset Pricing Model (CAPM)

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like CVS Health Corp. common stock.

Rates of Return
Variance and Covariance
Systematic Risk (β) Estimation
Expected Rate of Return

Rates of Return

CVS Health Corp., monthly rates of return

		CVS Health Corp. (CVS)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_CVS,t¹	Dividend_CVS,t¹	R_CVS,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jan 31, 2019	$65.55			2,704.10
1.	Feb 28, 2019	$57.83		-11.78%	2,784.49	2.97%
2.	Mar 31, 2019	$53.93		-6.74%	2,834.40	1.79%
3.	Apr 30, 2019	$54.38	$0.50	1.76%	2,945.83	3.93%
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58.	Nov 30, 2023	$67.95		-1.54%	4,567.80	8.92%
59.	Dec 31, 2023	$78.96		16.20%	4,769.83	4.42%
Average (R):				0.79%		1.11%
Standard deviation:				7.14%		5.31%

		CVS Health Corp. (CVS)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_CVS,t¹	Dividend_CVS,t¹	R_CVS,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jan 31, 2019	$65.55			2,704.10
1.	Feb 28, 2019	$57.83		-11.78%	2,784.49	2.97%
2.	Mar 31, 2019	$53.93		-6.74%	2,834.40	1.79%
3.	Apr 30, 2019	$54.38	$0.50	1.76%	2,945.83	3.93%
4.	May 31, 2019	$52.37		-3.70%	2,752.06	-6.58%
5.	Jun 30, 2019	$54.49		4.05%	2,941.76	6.89%
6.	Jul 31, 2019	$55.87	$0.50	3.45%	2,980.38	1.31%
7.	Aug 31, 2019	$60.92		9.04%	2,926.46	-1.81%
8.	Sep 30, 2019	$63.07		3.53%	2,976.74	1.72%
9.	Oct 31, 2019	$66.39	$0.50	6.06%	3,037.56	2.04%
10.	Nov 30, 2019	$75.27		13.38%	3,140.98	3.40%
11.	Dec 31, 2019	$74.29		-1.30%	3,230.78	2.86%
12.	Jan 31, 2020	$67.82	$0.50	-8.04%	3,225.52	-0.16%
13.	Feb 29, 2020	$59.18		-12.74%	2,954.22	-8.41%
14.	Mar 31, 2020	$59.33		0.25%	2,584.59	-12.51%
15.	Apr 30, 2020	$61.55	$0.50	4.58%	2,912.43	12.68%
16.	May 31, 2020	$65.57		6.53%	3,044.31	4.53%
17.	Jun 30, 2020	$64.97		-0.92%	3,100.29	1.84%
18.	Jul 31, 2020	$62.94	$0.50	-2.35%	3,271.12	5.51%
19.	Aug 31, 2020	$62.12		-1.30%	3,500.31	7.01%
20.	Sep 30, 2020	$58.40		-5.99%	3,363.00	-3.92%
21.	Oct 31, 2020	$56.09	$0.50	-3.10%	3,269.96	-2.77%
22.	Nov 30, 2020	$67.79		20.86%	3,621.63	10.75%
23.	Dec 31, 2020	$68.30		0.75%	3,756.07	3.71%
24.	Jan 31, 2021	$71.65	$0.50	5.64%	3,714.24	-1.11%
25.	Feb 28, 2021	$68.13		-4.91%	3,811.15	2.61%
26.	Mar 31, 2021	$75.23		10.42%	3,972.89	4.24%
27.	Apr 30, 2021	$76.40	$0.50	2.22%	4,181.17	5.24%
28.	May 31, 2021	$86.44		13.14%	4,204.11	0.55%
29.	Jun 30, 2021	$83.44		-3.47%	4,297.50	2.22%
30.	Jul 31, 2021	$82.36	$0.50	-0.70%	4,395.26	2.27%
31.	Aug 31, 2021	$86.39		4.89%	4,522.68	2.90%
32.	Sep 30, 2021	$84.86		-1.77%	4,307.54	-4.76%
33.	Oct 31, 2021	$89.28	$0.50	5.80%	4,605.38	6.91%
34.	Nov 30, 2021	$89.06		-0.25%	4,567.00	-0.83%
35.	Dec 31, 2021	$103.16		15.83%	4,766.18	4.36%
36.	Jan 31, 2022	$106.51	$0.55	3.78%	4,515.55	-5.26%
37.	Feb 28, 2022	$103.65		-2.69%	4,373.94	-3.14%
38.	Mar 31, 2022	$101.21		-2.35%	4,530.41	3.58%
39.	Apr 30, 2022	$96.13	$0.55	-4.48%	4,131.93	-8.80%
40.	May 31, 2022	$96.75		0.64%	4,132.15	0.01%
41.	Jun 30, 2022	$92.66		-4.23%	3,785.38	-8.39%
42.	Jul 31, 2022	$95.68	$0.55	3.85%	4,130.29	9.11%
43.	Aug 31, 2022	$98.15		2.58%	3,955.00	-4.24%
44.	Sep 30, 2022	$95.37		-2.83%	3,585.62	-9.34%
45.	Oct 31, 2022	$94.70	$0.55	-0.13%	3,871.98	7.99%
46.	Nov 30, 2022	$101.88		7.58%	4,080.11	5.38%
47.	Dec 31, 2022	$93.19		-8.53%	3,839.50	-5.90%
48.	Jan 31, 2023	$88.22	$0.605	-4.68%	4,076.60	6.18%
49.	Feb 28, 2023	$83.54		-5.30%	3,970.15	-2.61%
50.	Mar 31, 2023	$74.31		-11.05%	4,109.31	3.51%
51.	Apr 30, 2023	$73.31	$0.605	-0.53%	4,169.48	1.46%
52.	May 31, 2023	$68.03		-7.20%	4,179.83	0.25%
53.	Jun 30, 2023	$69.13		1.62%	4,376.86	4.71%
54.	Jul 31, 2023	$74.69	$0.605	8.92%	4,588.96	4.85%
55.	Aug 31, 2023	$65.17		-12.75%	4,507.66	-1.77%
56.	Sep 30, 2023	$69.82		7.14%	4,288.05	-4.87%
57.	Oct 31, 2023	$69.01	$0.605	-0.29%	4,193.80	-2.20%
58.	Nov 30, 2023	$67.95		-1.54%	4,567.80	8.92%
59.	Dec 31, 2023	$78.96		16.20%	4,769.83	4.42%
Average (R):				0.79%		1.11%
Standard deviation:				7.14%		5.31%

Show all

¹ Data in US$ per share of common stock, adjusted for splits and stock dividends.

² Rate of return on common stock of CVS during period t

³ Rate of return on S&P 500 (the market portfolio proxy) during period t

Variance and Covariance

CVS Health Corp., calculation of variance and covariance of returns

t	Date	R_CVS,t	R_{S&P 500,t}	(R_CVS,t–R_CVS)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_CVS,t–R_CVS)×(R_{S&P 500,t}–R_{S&P 500})
1.	Feb 28, 2019	-11.78%	2.97%	158.05	3.49	-23.47
2.	Mar 31, 2019	-6.74%	1.79%	56.83	0.47	-5.18
3.	Apr 30, 2019	1.76%	3.93%	0.94	7.98	2.73
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58.	Nov 30, 2023	-1.54%	8.92%	5.43	61.03	-18.21
59.	Dec 31, 2023	16.20%	4.42%	237.43	11.00	51.11
Total (Σ):				2,959.32	1,634.30	840.23

t	Date	R_CVS,t	R_{S&P 500,t}	(R_CVS,t–R_CVS)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_CVS,t–R_CVS)×(R_{S&P 500,t}–R_{S&P 500})
1.	Feb 28, 2019	-11.78%	2.97%	158.05	3.49	-23.47
2.	Mar 31, 2019	-6.74%	1.79%	56.83	0.47	-5.18
3.	Apr 30, 2019	1.76%	3.93%	0.94	7.98	2.73
4.	May 31, 2019	-3.70%	-6.58%	20.17	59.04	34.50
5.	Jun 30, 2019	4.05%	6.89%	10.59	33.49	18.83
6.	Jul 31, 2019	3.45%	1.31%	7.05	0.04	0.55
7.	Aug 31, 2019	9.04%	-1.81%	67.97	8.50	-24.03
8.	Sep 30, 2019	3.53%	1.72%	7.48	0.37	1.67
9.	Oct 31, 2019	6.06%	2.04%	27.69	0.88	4.93
10.	Nov 30, 2019	13.38%	3.40%	158.28	5.28	28.92
11.	Dec 31, 2019	-1.30%	2.86%	4.39	3.07	-3.68
12.	Jan 31, 2020	-8.04%	-0.16%	77.98	1.61	11.20
13.	Feb 29, 2020	-12.74%	-8.41%	183.17	90.57	128.80
14.	Mar 31, 2020	0.25%	-12.51%	0.29	185.44	7.37
15.	Apr 30, 2020	4.58%	12.68%	14.37	134.06	43.88
16.	May 31, 2020	6.53%	4.53%	32.91	11.71	19.63
17.	Jun 30, 2020	-0.92%	1.84%	2.92	0.54	-1.25
18.	Jul 31, 2020	-2.35%	5.51%	9.92	19.40	-13.87
19.	Aug 31, 2020	-1.30%	7.01%	4.40	34.82	-12.37
20.	Sep 30, 2020	-5.99%	-3.92%	46.01	25.29	34.11
21.	Oct 31, 2020	-3.10%	-2.77%	15.16	15.00	15.08
22.	Nov 30, 2020	20.86%	10.75%	402.60	93.10	193.60
23.	Dec 31, 2020	0.75%	3.71%	0.00	6.79	-0.11
24.	Jan 31, 2021	5.64%	-1.11%	23.45	4.93	-10.75
25.	Feb 28, 2021	-4.91%	2.61%	32.57	2.26	-8.58
26.	Mar 31, 2021	10.42%	4.24%	92.68	9.85	30.21
27.	Apr 30, 2021	2.22%	5.24%	2.03	17.11	5.90
28.	May 31, 2021	13.14%	0.55%	152.45	0.31	-6.88
29.	Jun 30, 2021	-3.47%	2.22%	18.19	1.24	-4.76
30.	Jul 31, 2021	-0.70%	2.27%	2.22	1.37	-1.74
31.	Aug 31, 2021	4.89%	2.90%	16.80	3.22	7.35
32.	Sep 30, 2021	-1.77%	-4.76%	6.58	34.37	15.04
33.	Oct 31, 2021	5.80%	6.91%	25.03	33.74	29.06
34.	Nov 30, 2021	-0.25%	-0.83%	1.08	3.76	2.02
35.	Dec 31, 2021	15.83%	4.36%	226.13	10.60	48.95
36.	Jan 31, 2022	3.78%	-5.26%	8.92	40.51	-19.00
37.	Feb 28, 2022	-2.69%	-3.14%	12.11	17.99	14.76
38.	Mar 31, 2022	-2.35%	3.58%	9.91	6.11	-7.78
39.	Apr 30, 2022	-4.48%	-8.80%	27.78	98.04	52.18
40.	May 31, 2022	0.64%	0.01%	0.02	1.21	0.16
41.	Jun 30, 2022	-4.23%	-8.39%	25.22	90.21	47.70
42.	Jul 31, 2022	3.85%	9.11%	9.35	64.09	24.48
43.	Aug 31, 2022	2.58%	-4.24%	3.19	28.62	-9.56
44.	Sep 30, 2022	-2.83%	-9.34%	13.15	109.11	37.88
45.	Oct 31, 2022	-0.13%	7.99%	0.85	47.34	-6.33
46.	Nov 30, 2022	7.58%	5.38%	46.07	18.23	28.98
47.	Dec 31, 2022	-8.53%	-5.90%	86.94	49.04	65.30
48.	Jan 31, 2023	-4.68%	6.18%	30.01	25.70	-27.77
49.	Feb 28, 2023	-5.30%	-2.61%	37.20	13.82	22.67
50.	Mar 31, 2023	-11.05%	3.51%	140.26	5.76	-28.42
51.	Apr 30, 2023	-0.53%	1.46%	1.76	0.13	-0.48
52.	May 31, 2023	-7.20%	0.25%	63.95	0.74	6.86
53.	Jun 30, 2023	1.62%	4.71%	0.68	13.02	2.97
54.	Jul 31, 2023	8.92%	4.85%	65.99	13.99	30.38
55.	Aug 31, 2023	-12.75%	-1.77%	183.34	8.28	38.96
56.	Sep 30, 2023	7.14%	-4.87%	40.21	35.73	-37.90
57.	Oct 31, 2023	-0.29%	-2.20%	1.18	10.92	3.59
58.	Nov 30, 2023	-1.54%	8.92%	5.43	61.03	-18.21
59.	Dec 31, 2023	16.20%	4.42%	237.43	11.00	51.11
Total (Σ):				2,959.32	1,634.30	840.23

Show all

Variance_CVS = Σ(R_CVS,t–R_CVS)² ÷ (59 – 1)
= 2,959.32 ÷ (59 – 1)
= 51.02

Variance_{S&P 500} = Σ(R_{S&P 500,t}–R_{S&P 500})² ÷ (59 – 1)
= 1,634.30 ÷ (59 – 1)
= 28.18

Covariance_{CVS, S&P 500} = Σ(R_CVS,t–R_CVS)×(R_{S&P 500,t}–R_{S&P 500}) ÷ (59 – 1)
= 840.23 ÷ (59 – 1)
= 14.49

Systematic Risk (β) Estimation

Variance_CVS	51.02
Variance_{S&P 500}	28.18
Covariance_{CVS, S&P 500}	14.49
Correlation coefficient_{CVS, S&P 500}¹	0.38
β_CVS²	0.51
α_CVS³	0.23%

Calculations

¹ Correlation coefficient_{CVS, S&P 500}
= Covariance_{CVS, S&P 500} ÷ (Standard deviation_CVS × Standard deviation_{S&P 500})
= 14.49 ÷ (7.14% × 5.31%)
= 0.38

² β_CVS
= Covariance_{CVS, S&P 500} ÷ Variance_{S&P 500}
= 14.49 ÷ 28.18
= 0.51

³ α_CVS
= Average_CVS – β_CVS × Average_{S&P 500}
= 0.79% – 0.51 × 1.11%
= 0.23%

Expected Rate of Return

Assumptions
Rate of return on LT Treasury Composite¹	R_F	4.68%
Expected rate of return on market portfolio²	E(R_M)	13.78%
Systematic risk (β) of CVS Health Corp. common stock	β_CVS	0.51

Expected rate of return on CVS Health Corp. common stock³	E(R_CVS)	9.36%

¹ Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

² See details »

³ E(R_CVS) = R_F + β_CVS [E(R_M) – R_F]
= 4.68% + 0.51 [13.78% – 4.68%]
= 9.36%